**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

** **
| x                                                |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
| ** **                                       |   |                                                                                           |
|                                             |   |                                                                                           |
| **For the quarterly period ended June 30, 2006** |
|                                             |   | ** **                                                                                     |
| **OR**                                           |
|                                             |   |                                                                                           |
| 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: 000-22673**

| **SIRONA DENTAL SYSTEMS, INC.**                         |
|---------------------------------------------------------|
| (Exact name of  registrant as specified in its charter) |
|                                                    |   |   |
| **Delaware**                                            |   | **11-3374812** |
| (State or other  jurisdiction of                        |   | (I.R.S. Employer |
| incorporation or  organization)                         |   | Identification  Number) |
|                                                    |   |   |
| **30-00  47th Avenue**                                  |   | ** ** |
| **Long  Island City, New York**                         |   | **11101** |
| (Address of  principal executive offices)               |   | (Zip Code) |

Registrant’stelephone number, including area code: **(718)937-5765**

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x    No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

LargeAccelerated Filer o                  Accelerated Filer x            Non-Accelerated Filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes o    No x

Asof August 7, 2006, 54,598,189 shares of common stock, par value $.01 per share,were outstanding.

 

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SIRONA DENTAL SYSTEMS, INC.

TABLEOF CONTENTS
| PART I.        |   | FINANCIAL  INFORMATION |   |                                                                                                                                 |
|----------------|--------|------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 1.                |   | FINANCIAL  STATEMENTS                                                                                                                |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   |                   |   | Condensed  Consolidated Balance Sheets as of June 30, 2006 (unaudited) and September 30,  2005                                       |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   |                   |   | Unaudited  Condensed Consolidated Statements of Operations for the three and nine months  ended June 30, 2006 and 2005 (predecessor) |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   |                   |   | Unaudited  Consolidated Statements of Cash Flows for the nine months ended June 30, 2006  and 2005 (predecessor)                     |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   |                   |   | Notes  to the Unaudited Condensed Consolidated Financial Statements                                                                  |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 2 .               |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                          |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 3 .               |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                          |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 4.                |   | CONTROLS AND  PROCEDURES                                                                                                             |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
| PART II.       |   | OTHER INFORMATION      |   |                                                                                                                                 |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 1.                |   | LEGAL PROCEEDINGS                                                                                                                    |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM  1A.              |   | RISK  FACTORS                                                                                                                        |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 2 .               |   | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                         |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 3.                |   | DEFAULTS  UPON SENIOR SECURITIES                                                                                                     |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 4.                |   | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                 |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM 5.                |   | OTHER INFORMATION                                                                                                                    |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
|           |   | ITEM  6.               |   | EXHIBITS                                                                                                                             |   |   |
|           |   |                   |   |                                                                                                                                 |   |   |
| SIGNATURES     |   |                   |
| CERTIFICATIONS |   |                   |

 

2

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**PART I. FINANCIALINFORMATION**

# **ITEM 1. FINANCIALSTATEMENTS**

**Sirona Dental Systems, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

 
| ** **                                                                                   | ** ** | **June 30,** | ** **    | **September 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------|---------------|------------------------|------------|
| **(U.S. $ in  thousands)**                                                              | ** ** | **2006**          | ** **    | **2005**               | ** ** |
| ** **                                                                                   | ** ** | **(unaudited)**   | ** **    | ** **             | ** ** |
| **ASSETS**                                                                                   | ** ** | ** **        | ** **    | ** **             | ** ** |
| ** **                                                                                   | ** ** | ** **        | ** **    | ** **             | ** ** |
| **Current assets**                                                                           | ** ** | ** **        | ** **    | ** **             | ** ** |
| Cash and cash  equivalents                                                                   |       | $                 | 75,685        |                   | $          | 65,941 |   |
| Restricted cash                                                                              |       | 604               |          | 674                    |       |
| Restricted short  term investments                                                           |       | —            |          | 745                    |       |
| Accounts  receivable, net of allowance for doubtful accounts of $502 and $402,  respectively |       | 62,275            |          | 47,631                 |       |
| Inventories, net                                                                             |       | 61,111            |          | 47,340                 |       |
| Deferred tax  assets                                                                         |       | 8,482             |          | 3,242                  |       |
| Prepaid expenses  and other current assets                                                   |       | 19,748            |          | 33,856                 |       |
|                                                                                         |       |              |          |                   |       |
| **Total current assets**                                                                     | ** ** | **$**             | **227,905**   | ** **             | **$**      | **199,429** | ** ** |
| ** **                                                                                   | ** ** | ** **        | ** **    | ** **             | ** ** |
| Property, plant  and equipment, net                                                          |       | 53,161            |          | 49,180                 |       |
| Goodwill                                                                                     |       | 615,621           |          | 468,769                |       |
| Intangible  assets, net                                                                      |       | 636,480           |          | 489,442                |       |
| Other  non-current assets                                                                    |       | 16,849            |          | 21,981                 |       |
| Deferred tax  assets                                                                         |       | 307               |          | 9,874                  |       |
|                                                                                         |       |              |          |                   |       |
| **Total assets**                                                                             | ** ** | **$**             | **1,550,323** | ** **             | **$**      | **1,238,675** | ** ** |
|                                                                                         |       |              |          |                   |       |
| **LIABILITIES, MINORITY INTEREST  AND SHAREHOLDERS’ EQUITY**                            | ** ** | ** **        | ** **    | ** **             | ** ** |
| ** **                                                                                   | ** ** | ** **        | ** **    | ** **             | ** ** |
| **Current liabilities**                                                                      | ** ** | ** **        | ** **    | ** **             | ** ** |
| Trade accounts  payable                                                                      |       | $                 | 27,732        |                   | $          | 22,173 |   |
| Current portion  of long-term debt                                                           |       | 13,922            |          | 10,103                 |       |
| Income taxes  payable                                                                        |       | 17,143            |          | 1,531                  |       |
| Deferred tax  liabilities                                                                    |       | 4,920             |          | 3,219                  |       |
| Accrued  liabilities and deferred income                                                     |       | 58,019            |          | 63,757                 |       |
|                                                                                         |       |              |          |                   |       |
| **Total current liabilities**                                                                | ** ** | **$**             | **121,736**   | ** **             | **$**      | **100,783** | ** ** |
| Long term debt                                                                               |       | 525,406           |          | 576,622                |       |
| Deferred tax  liabilities                                                                    |       | 253,551           |          | 196,392                |       |
| Other  non-current liabilities                                                               |       | 14,852            |          | 9,585                  |       |
| Indebtedness to  related parties                                                             |       | —            |          | 184,712                |       |
| Pension related  provisions                                                                  |       | 48,601            |          | 43,847                 |       |
| Deferred income                                                                              |       | 100,000           |          | 100,000                |       |
| **Total liabilities**                                                                        | ** ** | **$**             | **1,064,146** | ** **             | **$**      | **1,211,941** | ** ** |
| ** **                                                                                   | ** ** | ** **        | ** **    | ** **             | ** ** |
| **Minority interest**                                                                        | ** ** | **113**           | ** **    | **42**                 | ** ** |
|                                                                                         |       |              |          |                   |       |
| **Shareholders’ equity**                                                                | ** ** | ** **        | ** **    | ** **             | ** ** |
| Common share capital                                                                         |       | 546               |          | 30                     |       |
| Additional  paid-in capital                                                                  |       | 579,050           |          | 123,696                |       |
| Excess of  purchase price over predecessor basis                                             |       | (49,103           | )             | (49,103                | )          |
| Accumulated  deficit                                                                         |       | (45,918           | )             | (48,161                | )          |
| Accumulated  other comprehensive income                                                      |       | 1,489             |          | 230                    |       |
|                                                                                         |       |              |          |                   |       |
| **Total shareholders’ equity**                                                          |       | $                 | 486,064       |                   | $          | 26,692 |   |
| ** **                                                                                   |       |              |          |                   |       |
| **Total liabilities, minority  interest and shareholders’ equity**                      | ** ** | **$**             | **1,550,323** | ** **             | **$**      | **1,238,675** | ** ** |

 

The accompanyingfootnotes are an integral part of these consolidated financial statements

3

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**Sirona Dental Systems, Inc. and Subsidiaries**

**Unaudited Condensed Consolidated Statements ofOperations**

 
| ** **                                                   | ** ** | **Three months ended** | ** **  | **Nine months ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| **(U.S. $ in  thousands)**                              | ** ** | **June 30, 2006**      | ** **  | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                                   | ** ** | ** **                       | ** **  | **Predecessor**                 | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| **Revenue**                                                  | ** ** | **$**                            | **117,337** | ** **                      | **$**      | **106,372** | ** ** | **$** | **385,062** | ** ** | **$** | **358,285** | ** ** |
| Cost of sales                                                |       | 65,565                           |        | 61,046                          |       | 202,045 |   | 199,463 |   |
|                                                         |       |                             |        |                            |       |   |   |   |   |
| **Gross profit**                                             | ** ** | **$**                            | **51,772**  | ** **                      | **$**      | **45,326** | ** ** | **$** | **183,017** | ** ** | **$** | **158,822** | ** ** |
| Operating expenses  (income):                                |       |                             |        |                            |       |   |   |   |   |
| Selling, general and  administrative expense                 |       | 33,470                           |        | 32,677                          |       | 101,112 |   | 93,236 |   |
| Research and  development                                    |       | 8,166                            |        | 6,740                           |       | 23,139 |   | 21,700 |   |
| Write off of in-process  research and development            |       | 6,000                            |        | —                          |       | 6,000 |   | — |   |
| Provision for doubtful  accounts and notes receivables       |       | (138                             | )           | (130                            | )          | 44 |   | (127 | ) |
| Other operating expense  (income), net                       |       | 622                              |        | (471                            | )          | 2,306 |   | (384 | ) |
| ** **                                                   | ** ** | ** **                       | ** **  | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating income**                                         | ** ** | **3,652**                        | ** **  | **6,510**                       | ** ** | **50,416** | ** ** | **44,397** | ** ** |
| Foreign currency  transactions (gain) loss                   |       | (11,361                          | )           | 8,578                           |       | (9,481 | ) | 749 |   |
| Unrealized (gain) loss  on derivative instruments            |       | (2,397                           | )           | 4,304                           |       | (3,769 | ) | 4,383 |   |
| Interest expense, net                                        |       | 14,893                           |        | 7,035                           |       | 43,893 |   | 22,774 |   |
| Other income                                                 |       | —                           |        | (129                            | )          | — |   | (129 | ) |
| ** **                                                   | ** ** | ** **                       | ** **  | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income (loss) before income  taxes and minority interest** | ** ** | **2,517**                        | ** **  | **(13,278**                     | **)**      | **19,773** | ** ** | **16,620** | ** ** |
| Income tax provision  (benefit)                              |       | 7,983                            |        | (3,234                          | )          | 17,463 |   | 5,444 |   |
| Minority interest                                            |       | 45                               |        | (236                            | )          | 67 |   | 50 |   |
| **Net (loss) income**                                        | ** ** | **$**                            | **(5,511**  | **)**                           | **$**      | **(9,808** | **)** | **$** | **2,243** | ** ** | **$** | **11,126** | ** ** |
|                                                         |       |                             |        |                            |       |   |   |   |   |
| (Loss) income per share  - basic                             |       | $                                | (0.14       | )                               | $          | N/A |   | $ | 0.06 |   | $ | N/A |   |
| (Loss) income per share  - diluted                           |       | $                                | (0.14       | )                               | $          | N/A |   | $ | 0.06 |   | $ | N/A |   |
|                                                         |       |                             |        |                            |       |   |   |   |   |
| Weighted average shares  - basic                             |       | 38,908,289                       |        | N/A                             |       | 37,617,750 |   | N/A |   |
| Weighted average shares - diluted                            |       | 38,908,289                       |        | N/A                             |       | 38,085,232 |   | N/A |   |

The accompanying footnotes are an integralpart of these consolidated financial statements

4

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**Sirona Dental Systems, Inc. and Subsidiaries**

**Unaudited Condensed Consolidated Statements of CashFlows**

 
| ** **                                                                            | ** ** | **Nine months ended** | ** **  |
|---------------------------------------------------------------------------------------|------------|---------------------------------|-------------|
| **(U.S. $ in  thousands)**                                                       | ** ** | **June 30, 2006**     | ** **  | **June 30, 2005** | ** ** |
| ** **                                                                            | ** ** | ** **                      | ** **  | **Predecessor** | ** ** |
| **Cash flows from operating activities**                                              | ** ** | ** **                      | ** **  | ** ** | ** ** |
| **Net income**                                                                        | ** ** | **$**                           | **2,243**   | ** ** | **$** | **11,126** | ** ** |
| **Adjustments to reconcile net  income to net cash provided by operating activities** | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Depreciation and  amortization                                                        |       | 45,967                          |        | 44,155 |   |
| Gain on disposal of  property, plant and equipment                                    |       | 2                               |        | (45 | ) |
| Unrealized (gain) loss  on derivative instruments                                     |       | (3,769                          | )           | 4,383 |   |
| Foreign currency  transactions (gain) loss                                            |       | (9,481                          | )           | 749 |   |
| Accreted interest on  long term debt                                                  |       | 15,317                          |        | 3,115 |   |
| Deferred income taxes                                                                 |       | (3,817                          | )           | (2,546 | ) |
| Write off of in-process  research and development                                     |       | 6,000                           |        | — |   |
| Amortization debt  issuance cost                                                      |       | 5,283                           |        | 1,807 |   |
| Compensaton expense  from stock options                                               |       | 347                             |        | — |   |
|                                                                                  |       |                            |        |   |   |
| **Changes in assets and  liabilities**                                                | ** ** | ** **                      | ** **  | ** ** | ** ** |
| ** **                                                                            | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Accounts receivable                                                                   |       | (4,798                          | )           | (1,547 | ) |
| Inventories                                                                           |       | (4,039                          | )           | (2,869 | ) |
| Prepaid expenses and  other current assets                                            |       | 13,029                          |        | (13 | ) |
| Restricted Cash                                                                       |       | 103                             |        | (276 | ) |
| Changes in other  non-current assets                                                  |       | 8,853                           |        | (51 | ) |
| Trade accounts payable                                                                |       | (4,200                          | )           | (6,701 | ) |
| Accrued liabilities                                                                   |       | (11,357                         | )           | 8,068 |   |
| Other non-current  liabilities                                                        |       | 6,740                           |        | (6,809 | ) |
| Income taxes payable                                                                  |       | 15,014                          |        | 2,260 |   |
|                                                                                  |       |                            |        |   |   |
| **Net cash provided by operating  activities**                                        | ** ** | **$**                           | **77,437**  | ** ** | **$** | **54,806** | ** ** |
| ** **                                                                            | ** ** | ** **                      | ** **  | ** ** | ** ** |
| **Cash flows from investing  activities**                                             | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Investment in property,  plant and equipment                                          |       | (10,184                         | )           | (11,041 | ) |
| Proceeds from sale of  property, plant and equipment                                  |       | 700                             |        | 191 |   |
| Restricted short term  investments                                                    |       | 753                             |        | (272 | ) |
| Purchase of intangible  assets                                                        |       | (1,469                          | )           | (586 | ) |
| Deferred purchase price  payment                                                      |       | —                          |        | (25,700 | ) |
| Acquisition of a  business, net cash acquired                                         |       | 14,279                          |        | — |   |
|                                                                                  |       |                            |        |   |   |
| **Net cash provided by (used in)  investing activities**                              | ** ** | **$**                           | **4,079**   | ** ** | **$** | **(37,408** | **)** |
| ** **                                                                            | ** ** | ** **                      | ** **  | ** ** | ** ** |
| **Cash flows from financing  activities**                                             | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Repayment of  shareholder loans                                                       |       | —                          |        | 2,596 |   |
| Repayments of long-term  debt                                                         |       | (73,962                         | )           | (17,220 | ) |
| Proceeds from shares  under share-based compensation plans                            |       | —                          |        | — |   |
|                                                                                  |       |                            |        |   |   |
| **Net cash used in financing  activities**                                            | ** ** | **$**                           | **(73,962** | **)** | **$** | **(14,624** | **)** |
| ** **                                                                            | ** ** | ** **                      | ** **  | ** ** | ** ** |
| Change in cash and cash  equivalents                                                  |       | 7,554                           |        | 2,774 |   |
| Effect of exchange rate  change on cash & cash equivalents                        |       | 2,190                           |        | 877 |   |
| Cash and cash  equivalents at beginning of period                                     |       | 65,941                          |        | 38,877 |   |
|                                                                                  |       |                            |        |   |   |
| **Cash and cash equivalents at end of period**                                        | ** ** | **$**                           | **75,685**  | ** ** | **$** | **42,528** | ** ** |

 

The accompanying footnotes are an integralpart of these consolidated financial statements

 
| **Supplemental information**                                | ** ** | ** **  | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|-------------|------------|------------|------------|
| Interest paid                                               |       | 23,420      |       | 22,274     |       |
| Interest capitalized                                        |       | 122         |       | 51         |       |
| Income taxes paid  (received)                               |       | 4,744       |       | (1,393     | )          |
| **Acquisition of businesses, net cash  acquired**           |       |        |       |       |       |
| Current assets                                              |       | 19,450      |       |       |       |
| Property, plant and  equipment and other non-current assets |       | 207,961     |       |       |       |
| Goodwill and intangible  assets                             |       | 289,412     |       |       |       |
| Current liabilities                                         |       | (75,579     | )          |       |       |
| Shares and options  exchanged                               |       | (455,523    | )          |       |       |
|                                                        | ** ** | **(14,279** | **)**      | ** ** | ** ** |

5

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# **SIRONADental Systems, Inc. and Subsidiaries**

**Notes to the Unaudited Condensed Consolidated FinancialStatements**

**1.****                                     ****Basis of Presentation**

Theseunaudited interim condensed consolidated financial statements (“interimfinancial statements”) have been prepared in accordance with U.S. generallyaccepted accounting principles (“U.S. GAAP”). Preparation of the interimfinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions related to the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at thereporting date and the reported amounts of revenues and expenses for the interimperiod. Actual amounts could differ from those estimates. Except as otherwisedisclosed, all amounts are reported in thousands of U.S. dollars (“$”).

OnSeptember 25, 2005, Schick Technologies, Inc. (“Schick”), which on June20, 2006 was renamed Sirona Dental Systems, Inc. (“SIRONA” or the “Company”),entered into an Exchange Agreement with Sirona Holdings Luxco S.C.A. (“Luxco”)and Sirona Holding GmbH (“Sirona Holding”) providing for the issuance of36,972,480 shares of Schick common stock to Luxco in exchange for Luxco’sentire economic interest in Sirona Holding, which consisted of all of theissued and outstanding share capital of Sirona Holding and the existingindebtedness of Sirona Holding owed to Luxco in the principal amount of €150,992($181,960) plus accrued interest in the amount of $23,606 as of June 20,2006 (the “Exchange”). The Exchange closed on June 20, 2006. For accountingpurposes, the Exchange is accounted as a reverse acquisition of Schick bySirona Holding. The historical financial statements of Sirona Holding and itspredecessors are the historical financial statements of the Company, and theacquisition by Sirona Holding of the assets and liabilities of Schick isaccounted for under the purchase method of accounting. Results of operations ofSchick and its wholly owned subsidiary have been included in these interimfinancial statements from June 20, 2006, the effective date of the Exchange(see Note 3).

Certainprior period amounts have been reclassified to conform to the current periodpresentation. All significant intercompany accounts and transactions have beeneliminated. In the opinion of management, these unaudited condensedconsolidated interim financial statements contain all adjustments, consistingonly of normal recurring adjustments, necessary to present fairly the financialposition and results of operations of the Company. Revenues, expenses, assetsand liabilities can vary during each quarter of the year. Therefore, theresults and trends in these interim financial statements may not berepresentative of those for any future period or the full year. These condensedinterim financial statements should be read in conjunction with the financialstatements and the notes thereto included in the Company’s Form 8-K filed withthe Securities and Exchange Commission on August 9, 2006.

OnJune 30, 2005, Luxco, a Luxembourg-based holding entity owned by fundsmanaged by Madison Dearborn Partners, Beecken Petty O’Keefe, management andemployees of Sirona Group, obtained control over the Sirona business. Thetransaction was effected by using new legal entities, Sirona Holding GmbH andits wholly owned subsidiary Sirona Dental Services GmbH to acquire 100% of theinterest in Sirona Dental Systems Beteiligungs- und Verwaltungs GmbH, theformer parent of the Sirona business through a leveraged buy-out transaction(the “MDP Transaction”).

TheMDP Transaction was accounted for in accordance with Emerging Issues Task ForceIssue 88-16, Basis in Leveraged Buyout Transactions (“EITF 88-16”), in amanner similar to a business combination under FASB Statement No. 141,Business Combinations (“SFAS 141”). Certain members of Sirona managementwho were deemed to be in the control group held equity interests in SironaGroup prior to and subsequent to the MDP Transaction (“Continuing Shareholders”).The interests of the Continuing Shareholders have been reflected at thepredecessor basis, resulting in 9.15% of each asset and liability acquiredbeing valued at historical cost at June 30, 2005. The remaining 90.85%interest in each asset and liability was recognized at fair value atJune 30, 2005 and the difference between the purchase price and the fairvalue of the net assets and liabilities was recorded as goodwill.

Sincethe MDP Transaction materially changed the carrying values recorded in SironaHolding’s consolidated balance sheet, the financial statements for the periodsfor which the interim financial statements are not prepared on a comparablebasis are identified as those of the “Predecessor”.

6

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**2.****                                      NewAccounting Pronouncements Not Yet Adopted**

**FIN 48**

InJuly 2006, the FASB issued Interpretation (FIN) No. 48, Accounting forUncertainty in Income Taxes, which clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements. FIN 48prescribes a comprehensive model for how an entity should recognize, measureand present in its financial statements uncertain tax positions taken or to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.

The evaluation of a tax position in accordance with FIN 48 is a two-stepprocess. The first step is a recognition process whereby the enterprise determineswhether it is more likely than not that a tax position will be sustained uponexamination, including resolution of any related appeals or litigationprocesses, based on the technical merits of the position. In evaluating whethera tax position has met the more-likely-than-not recognition threshold, theenterprise should presume that the position will be examined by the appropriatetaxing authority that has full knowledge of all relevant information. Thesecond step is a measurement process whereby a tax position that meets themore-likely-than-not recognition threshold is calculated to determine theamount of benefit to recognize in the financial statements. The tax position ismeasured at the largest amount of benefit that is greater than 50% likely ofbeing realized upon ultimate settlement.

The provisions of FIN 48 are effective for fiscal years beginning afterDecember 15, 2006. Earlier application is permitted as long as the enterprisehas not yet issued financial statements, including interim financialstatements, in the period of adoption. The provisions of FIN 48 are to beapplied to all tax positions upon initial adoption. Only tax positions thatmeet the more-likely-than-not recognition threshold at the effective date maybe recognized or continue to be recognized upon adoption of FIN 48. Thecumulative effect of applying the provisions of FIN 48 should be reported as anadjustment to the opening balance of retained earnings (or other appropriatecomponents of equity or net assets in the statement of financial position) forthat fiscal year. We are currently evaluating the potential impact, if any,that the adoption of FIN 48 will have on our consolidated financial statements.

**3.****                                     ****The Exchange**

OnSeptember 25, 2005, Schick, which on June 20, 2006 was renamed SironaDental Systems, Inc., entered into an Exchange Agreement with Sirona HoldingsLuxco S.C.A. and Sirona Holding providing for the issuance of 36,972,480 sharesof Schick common stock to Luxco in exchange for Luxco’s entire economicinterest in Sirona Holding, which consisted of all of the issued andoutstanding share capital of Sirona Holding and the existing indebtedness ofSirona Holding owed to Luxco in the principal amount of €150,992 ($181,960)plus accrued interest in the amount of $23,606 as of June 20, 2006. It wasalso agreed that Schick shareholders would receive a $ 2.50 per share cashdividend.

At a special meeting, which took place on June 14, 2006, Schick’sshareholders approved the Exchange Agreement and the amendment to the Amendedand Restated Certificate of Incorporation to increase Schick’s authorizedshares of capital stock and to change Schick’s corporate name to Sirona DentalSystems, Inc., and the amendment of Schick’s 1996 Stock Option Plan. Thefiscal year was changed from March 31 to September 30, Sirona Holding’s yearend.

The Exchange was completed on June 20, 2006 and Schick has been includedin the Company’s consolidated statement of operations since then. The cashdividend was paid on June 23, 2006. Sirona Holding is deemed to be theacquiring company under U.S. GAAP because Luxco, Sirona Holding’s shareholder,has a controlling ownership interest in the combined company, Sirona Holding’sdesignees to the board represent a majority of the directors and  Sirona Holding’s senior management representsa majority of management.

The transaction was accounted for as a purchase business combination inaccordance with FASB Statement No. 141, Business Combinations (“SFAS 141”).  The carrying values of Schick’s assets andliabilities were adjusted to their fair values on June 20, 2006, and thedifference between the purchase price and the fair value of the net assets andliabilities was recorded as goodwill.

7

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The purchase price was comprised of 17,615,660 Schick shares outstandingon June 20, 2006. Based on the average of the closing prices for a range oftrading days (September 22, 2005 through September 28, 2005, inclusive) aroundthe announcement date of September 26, 2005 of the Exchange Agreement, the fairvalue is $24.96 per share, or approximately $ 439,687. The purchase price also includes theestimated fair value of 856,944 vested stock options which were not exercisedprior to the Exchange ($ 15,363), unvested stock options ($ 8,111), reduced bythe unvested options relating to services to be provided in the future($ 7,638), and direct acquisition costs of $ 7,702. The fair value of thevested and unvested options was estimated using the Black-Scholes model andassumptions as follows: the relevant exercise price, a market price of $24.96(average of closing prices around the Exchange announcement date), volatilityof 34.0%, estimated life of 5 years, and a risk free rate of 3.73%. The cost ofthe acquired business is reduced by the unearned portion of the unvestedoptions relating to services to be provided in the future (see Note 4).

The total purchase price ofSchick in the Exchange was as follows:
| (U.S. $ in thousands)                                                 | ** ** | ** ** | ** **  |
|----------------------------------------------------------------------------|------------|------------|-------------|
| Purchase price                                                             |       |       |        |
| Schick common  stock                                                       |       | $          | 439,687     |   |
| Schick  restricted vested options                                          |       | 15,363     |        |
| Schick unvested  options                                                   |       | 8,111      |        |
| Schick unvested  options relating to services to be provided in the future |       | (7,638     | )           |
| Sirona direct  transaction costs                                           |       | 7,702      |        |
|                                                                       | ** ** | **$**      | **463,225** | ** ** |

The allocation of the purchase price, which ispreliminary, is as follows:
| **(U.S. $ in thousands)**             | ** ** | ** ** | ** **  |
|--------------------------------------------|------------|------------|-------------|
| Current assets                             |       | $          | 41,431      |   |
| Property, plant  and equipment             |       | 1,335      |        |
| Intangible  assets subject to amortization |       | 132,300    |        |
| Trade name not  subject to amortization    |       | 24,000     |        |
| In process  research and development       |       | 6,000      |        |
| Goodwill                                   |       | 127,112    |        |
| Receivable from  Luxco                     |       | 205,566    |        |
| Other assets                               |       | 1,060      |        |
| **Total  assets**                          | ** ** | **$**      | **538,804** | ** ** |
| Current  liabilities                       |       | (12,445    | )           |
| Deferred taxes                             |       | (63,134    | )           |
| **Total  liabilities assumed**             | ** ** | **$**      | **(75,579** | **)** |
| **Purchase price**                         | ** ** | **$**      | **463,225** | ** ** |

The Company believes theacquisition will strengthen its competitive position in the technology-drivenImaging Systems segment by uniting research and development capabilities toaccelerate product developments and expanding its global presence, particularlyin the significant U.S. market, and is expected to provide certain synergies.

8

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Schick designs, develops and manufactures digital imaging systems forthe dental market. Schick currently manufactures and markets a variety ofdigital imaging products including an intra-oral digital radiography system(CDR® and CDR WirelessTM), a digital panoramic radiography sensor (CDRPan®) andintegrated device (CDRPanXTM), an intra-oral camera system (USBCam®), and a DCdental x-ray generator (SDXTM). The fair value of in process research anddevelopment (IPR&D) projects relate to these Intra-Oral products. IPR&Dwas appraised using discounted future probable cash flows on a project byproject basis. Cash inflows from significant projects were forecast to commencein the 1-2 years following the acquisition date. The cash flows derived fromIPR&D projects were discounted at a rate of 13%. The Company believes therate used was appropriate given the risks associated with the technologiesincluding their incomplete status. No alternative future use was identified forIPR&D projects so the entire $6,000 value of those assets was charged tothe income statement at the acquisition date, included in the write off in-processresearch and development line item, for the three and nine month periods endedJune 30, 2006.

TheCompany is in the process of completing its allocation of the purchase priceand has not yet received final valuations of certain intangible assets fromthird-party appraisers. Thus, the allocation of the purchase price ispreliminary and subject to refinement. A summary of the identifiable intangibleassets acquired is as follows:
|                                | ** ** | ** ** | ** ** | **Weighted average**    | ** ** |
|--------------------------------|------------|------------|------------|------------------------------|------------|
| **(U.S. $ in thousands)** | ** ** | ** ** | ** ** | **amortization period** | ** ** |
|                           |       |       |       |                         |       |
| Developed  technologies        |       | 127,000    |       | 10                           |       |
| Dealer  relationships          |       | 3,300      |       | 10                           |       |
| CDR trademark                  |       | 2,000      |       | 20                           |       |
| Schick trademark               |       | 24,000     |       | indefinite                   |       |

The fair value of thetechnology assets was determined by using an earnings - based valuation method.The useful life was determined based on the expected use of the technology, anylegal provisions that may limit the useful life of the technology, the effectsof known advances, obsolescence, demand and competition and the level of maintenanceexpenses required to obtain the future cash flows of the technology. Based onthese factors, technologies were assigned useful lives of 10 years.

Thefair value of the dealer relationships was determined using the replacementcost valuation method, which considered the cost which would have been incurredto search, engage and train the new dealers to service Schick’s products. Theremaining useful life of a contractual dealer relationship relates to theestimated average period of 10 years after which an existing dealer needs to beretrained, similar to a new dealer.

Thefair values of the trademarks were determined using the relief from royaltymethod and assumed royalty rates ranging from 0.25% to 2.0%. The Company deemsthe Schick trademark to be an indefinite lived intangible asset as it is usedworldwide, can be separated from other assets, does not have any legal,regulatory, contractual, competitive, economic or other factors that limit itsuseful live, and requires no material levels of maintenance to retain its cashflow. As such, that trademark is not currently subject to amortization. TheCompany evaluates the useful life of trademarks each year to determine whetherfacts and circumstances continue to support an indefinite life for this asset.

9

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Thepro forma condensed consolidated information for the three and nine monthperiods ended June 30, 2005 gives effect to the Exchange and the MDPTransaction as if they had occurred on October 1, 2004; the pro formainformation for the three and nine month periods ended June 30, 2006 giveseffect to the Exchange as if it had occurred on October 1, 2005.
| ** **                                                   | ** ** | **Three months ended** | ** **  | **Nine months ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| **(U.S. $ in  thousands)**                              | ** ** | **June 30, 2006**      | ** **  | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                                   | ** ** | ** **                       | ** **  | **Predecessor**                 | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| **Revenue**                                                  | ** ** | **$**                            | **132,296** | ** **                      | **$**      | **122,055** | ** ** | **$** | **440,401** | ** ** | **$** | **404,635** | ** ** |
| Cost of sales                                                |       | 72,831                           |        | 73,321                          |       | 229,141 |   | 235,779 |   |
|                                                         |       |                             |        |                            |       |   |   |   |   |
| **Gross profit**                                             | ** ** | **59,465**                       | ** **  | **48,734**                      | ** ** | **211,260** | ** ** | **168,856** | ** ** |
| Operating expenses  (income):                                |       |                             |        |                            |       |   |   |   |   |
| Selling, general and  administrative expense                 |       | 40,882                           |        | 40,597                          |       | 124,009 |   | 116,607 |   |
| Research and  development                                    |       | 9,468                            |        | 7,912                           |       | 27,099 |   | 25,365 |   |
| Provision for doubtful  accounts and notes receivables       |       | (138                             | )           | (130                            | )          | 44 |   | (127 | ) |
| Other operating expense  (income), net                       |       | 622                              |        | (471                            | )          | 2,306 |   | (384 | ) |
|                                                         |       |                             |        |                            |       |   |   |   |   |
| **Operating income**                                         | ** ** | **8,631**                        | ** **  | **826**                         | ** ** | **57,802** | ** ** | **27,395** | ** ** |
| Foreign currency  transactions (gain) loss                   |       | (11,361                          | )           | 8,578                           |       | (9,481 | ) | 749 |   |
| Unrealized (gain) loss  on derivative instruments            |       | (2,397                           | )           | 4,304                           |       | (3,769 | ) | 4,383 |   |
| Interest expense, net                                        |       | 11,359                           |        | 10,029                          |       | 32,823 |   | 32,463 |   |
| Other income                                                 |       | —                           |        | (129                            | )          | (30 | ) | (129 | ) |
| **Income (loss) before income  taxes and minority interest** | ** ** | **11,030**                       | ** **  | **(21,956**                     | **)**      | **38,259** | ** ** | **(10,071** | **)** |
| Income tax provision  (benefit)                              |       | 8,352                            |        | (5,487                          | )          | 20,754 |   | (1,869 | ) |
| Minority interest                                            |       | 45                               |        | (236                            | )          | 67 |   | 50 |   |
| **Net income (loss)**                                        | ** ** | **$**                            | **2,633**   | ** **                      | **$**      | **(16,233** | **)** | **$** | **17,438** | ** ** | **$** | **(8,252** | **)** |
|                                                         |       |                             |        |                            |       |   |   |   |   |
| Income (loss) per share  - basic                             |       | 0.05                             |        | (0.31                           | )          | 0.33 |   | (0.15 | ) |
| Income (loss) per share - diluted                            |       | 0.05                             |        | (0.31                           | )          | 0.32 |   | (0.15 | ) |
| Weighted average shares - basic                              |       | 53,928,824                       |        | 53,008,342                      |       | 53,487,133 |   | 52,794,228 |   |
| Weighted average shares - diluted                            |       | 55,335,294                       |        | 53,008,342                      |       | 55,160,487 |   | 52,794,228 |   |

10

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**4.****                                     ****Employee Share-Based Compensation**

FASB Statement No. 123 (Revised 2004), Share-Based Payment (“SFAS 123(R)”)requires that all share-based compensation arrangements, including grants ofstock option awards to employees, be recognized based on the estimated fairvalue of the share-based payment award. The historical financial information ofthe Company is based on Sirona Holding’s financial information prior to theExchange which closed on June 20, 2006. Sirona Holding was a non-public entityand did not grant any share-based payment awards prior to the June 20, 2006Exchange. The share-based awards assumed or issued in connection with theExchange are subject to the guidance of SFAS 123(R). As there were noshare-based awards issued by Sirona Holding prior to the Exchange, the adoptionof SFAS 123(R) did not result in any transitional adjustments or a requirementto provide pro forma disclosures for prior periods.

Inconnection with the reverse acquisition of Schick effected by the Exchange,share-based awards outstanding under Schick’s 1996 Stock Option Plan (the “Plan”)and 1997 Stock Option Plan for Non-Employee Directors (the “Directors Plan”)continue to be outstanding. At the date of the Exchange, 856,944 vested and458,179 unvested options were outstanding (see note 3). Stock options grantedunder the assumed stock option plans have a contractual life of 10 years fromthe date of grant and requisite service periods of 2 to 4 years. The Companydoes not expect to repurchase these shares within the next 12 months.

The Plan permitted incentive and non-qualified options to purchase sharesof common stock to be granted to employees, directors and consultants. The 1996Plan allowed for the issuance of 4,700,000 options and expired on April 22,2006. Accordingly, no further options may be granted under the Plan.

The Directors Plan stipulates that the exercise price of non-qualifiedoptions granted under that plan must equal or exceed 85% of the fair marketvalue of the common stock as of the date of grant of the option, and no optionmay be exercisable after ten years from the date of grant. The Company hasnever granted options at less than market on the date of grant. The DirectorsPlan also provides that certain awards will become fully vested and/orexercisable upon a change in control (as defined in the Directors Plan) subjectto certain restrictions. At June 30, 2006, the number of shares authorized forawards was 600,000.

Incontemplation of the Exchange, Schick conditionally granted to certainemployees and consultants options to purchase 1,530,000 shares of Schick commonstock as of September 25, 2005. The options granted were conditional onthe Exchange closing. Upon the June 20, 2006 closing of the Exchange, the dateof grant for accounting purposes, the conditional options commenced vestingover a four year period.

The fair value of each option award is estimated on the date of grantusing the Black-Scholes option-pricing model using the assumptions noted in thefollowing table. The expected life represents the period of time the optionsare expected to be outstanding. As a public company with no prior optionhistory, SIRONA assessed Schick’s historical volatilities and compared these toa peer group. Because Schick did not trade on an organized marketplace orexchange from 1999 to 2002 that period is not indicative of the expected volatility.Furthermore the volatility after the announcement date in 2005 is affected bythe Exchange Agreement. Based on these factors and after consideration of thehistorical volatilities of the peer group companies, the Company determinedthat the volatility of Schick shares during the 52 week period prior to theannouncement date results in the best estimate of the expected volatility at34%. The average option life was estimated to be five years based onanticipated employee exercise behaviour. It has been common for optionrecipients to realize gains as the market price of the stock attained in themoney levels. Substantial share appreciation in the two years prior to theannounced Exchange triggered significant option exercises at Schick. The Exchangeitself triggered additional disqualifying distributions in response to thesubsequent stock price run up in spite of the announced dividend. The expecteddividend yield is based on SIRONA ́s history of not paying regular dividends inthe past and the Company’s current intention not to pay regular dividends inthe foreseeable future. The risk-free rate is based on the U.S. Treasury yieldcurve in effect at the time of grant and has a term equal to the expected lifeof the options.
|                     | ** ** | **Three and nine**      |
|---------------------|------------|-------------------------|
| ** **          | ** ** | **month periods ended** |
| ** **          | ** ** | **June 30, 2006**       |
| Expected Volatility |       | 34%                     |
|                |       |                    |
| Risk-free rate      |       | 3.73%                   |
| Expected term       |       | 5 to 6.25 years         |
| Expected dividends  |       | —                  |

11

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Compensation expense of $354 has been charged against income forstock-based compensation for the three and nine month periods ended June 30,2006. This charge was recorded within selling, general and administration for$248, research and development for $64, and cost of sales for $42. The totalincome tax benefit recognized in the income statement for the share-basedcompensation arrangements was $109, for the period ended June 30, 2006. SIRONAdid not grant any share-based awards prior to the closing of the Exchange soprior periods were not burdened by share-based compensation expense.

Thefollowing is a summary of SIRONA ́s stock option activity for the three and ninemonth periods ended June 30, 2006:
|                                                                        | ** ** | **Three and nine month periods ended** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **June 30, 2006**                                     | ** ** |
| ** **                                                             | ** ** | **Number of options**                                 | ** ** | **Weighted average  exercise price $** | ** ** |
|                                                                   |       |                                                            |       |   |   |
| Outstanding at  beginning of period                                    |       | —                                                          |       | — |   |
| Schick awards  assumed in Exchange and included in purchase accounting |       | 1,315,123                                                       |       | 11.20 |   |
| Conditional  Schick awards not reflected in purchase accounting        |       | 1,530,000                                                       |       | 25.10 |   |
| Granted                                                                |       | 60,000                                                          |       | 42.50 |   |
| Exercised                                                              |       | (5,276                                                          | )          | 1.40 |   |
| Expired                                                                |       | —                                                          |       | — |   |
| Forfeited                                                              |       | —                                                          |       | — |   |
| Outstanding at  end of period                                          |       | 2,899,847                                                       |       | 19.20 |   |
| Exercisable at end of  period                                          |       | 885,680                                                         |       | 9.24 |   |

There were 5,276 options thatwere exercised during the ten day period ended June 30, 2006. The totalintrinsic value of options exercised for the period ended June 30, 2006 was$202. The aggregate intrinsic value of stock options exercisable at June 30,2006 was $26,903 and these options have a weighted average remainingcontractual life of 5.55 years. The aggregate intrinsic value of stock optionsoutstanding at June 30, 2006 was approximately $59,214 and these options have aweighted-average remaining contractual life of 7.34 years.

Asummary of the status of our nonvested options as of June 30, 2006, and thechanges during the three and nine months ended June 30, 2006, is presentedbelow:
|                                                                        | ** ** | **Three and nine month periods ended** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **June 30, 2006**                                     | ** ** |
| ** **                                                             | ** ** | ** **                                                      | ** ** | **Weighted average grant** | ** ** |
| **Nonvested stock options**                                  | ** ** | **Number of shares**                                  | ** ** | **Date fair value $** | ** ** |
|                                                                   |       |                                                            |       |   |   |
| Schick awards  assumed in Exchange and included in purchase accounting |       |                                                            |       |   |   |
| Nonvested at  beginning of period                                      |       | 1,315,123                                                       |       | 23.43 |   |
| Conditional Schick  awards not reflected in purchase accounting        |       | 1,530,000                                                       |       | 24.53 |   |
| Granted                                                                |       | 60,000                                                          |       | 15.46 |   |
| Vested                                                                 |       | (890,956                                                        | )          | 18.38 |   |
| Forfeited                                                              |       | —                                                          |       | — |   |
| Nonvested at June 30,  2006                                            |       | 2,014,167                                                       |       | 25.36 |   |

 

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As of June 30, 2006, there was $45,742 of total compensation cost to berecognized in future periods related to nonvested share-based compensationarrangements. The cost is expected to be recognized over a weighted-averageperiod of 2.75 years. The cash received and the actual tax benefit realized forthe tax deductions from option exercises was $7 and $26 for the three and ninemonths ended June 30, 2006. The total fair value of options vested for thethree and nine months ended June 30, 2006 is $16,205.

**5.****                                     ****Comprehensive Income**

Comprehensiveincome for the nine-month period ending June 30, 2006 was $ 3,502comprising net income of $ 2,243 and cumulative translation adjustment of$ 1,259.

Comprehensiveincome for the nine-month periods ending June 30, 2005 was $ 9,839,comprising net income of $11,126 and cumulative translation adjustment of$ (1,287).

**6.****                                     ****Inventories, net**

 
| (U.S. $ in thousands) | ** ** | **June 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|----------------------------|------------|-----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | ** **                  |       |                             | ** ** |
| Raw materials              |       | $                           | 25,944     |                             | $          | 18,460 |   |
| Work in progress           |       | 14,748                      |       | 12,153                           |       |
| Finished goods             |       | 29,715                      |       | 23,370                           |       |
|                       |       |                        |       |                             |       |
|                       | ** ** | **70,407**                  |       | **53,983**                       | ** ** |
| Inventory  reserve         |       | (9,296                      | )          | (6,643                           | )          |
|                       | ** ** | **$**                       | **61,111** | ** **                       | **$**      | **47,340** | ** ** |

 

**7.****                                     ****Pension Costs**

 
| ** **                      | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **(U.S. $ in  thousands)** | ** ** | **June 30, 2006**      | ** ** | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                      | ** ** | ** **                       | ** ** | **Predecessor**                 | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
|                            |       |                             |       |                            |       |   |   |   |   |
| Service Cost                    |       | 77                               |       | 81                              |       | 224 |   | 247 |   |
| Interest Cost                   |       | 495                              |       | 509                             |       | 1,439 |   | 1563 |   |
|                            |       |                             |       |                            |       |   |   |   |   |
| **Net periodic benefit cost**   | ** ** | **$**                            | **572**    | ** **                      | **$**      | **590** | ** ** | **$** | **1,663** | ** ** | **$** | **1,810** | ** ** |
|                                 |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |

 

13

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**8.****                                      ProductWarranty**

 

The following table providesthe changes in the product warranty accrual:

 
|                                                   | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------|------------|---------------------------------|------------|
| **(U.S. $ in thousands)**                    | ** ** | **June 30, 2006**     | ** ** | **June 30, 2005** | ** ** |
| ** **                                        | ** ** | ** **                      | ** ** | ** ** |   |
| Opening balance                                   |       | $                               | 9,276      |   | $ | 7,362 |   |
| Accruals for  warranties issued during the period |       | 10,864                          |       | 10,270 |   |
| Warranty  settlements made during the period      |       | (8,661                          | )          | (8,514 | ) |
| Translation  adjustment                           |       | 583                             |       | (271 | ) |
|                                              |       |                            |       |   |   |
| Closing balance                                   | ** ** | **$**                           | **12,062** | ** ** | **$** | **8,847** | ** ** |

 

Warranty expense for the three month endedJune 30, 2006 and 2005 was $ 3,554 and $ 3,646 respectively. Warranty expensefor the nine months ended June 30, 2006 and 2005 was 10,586 and $ 10,139,respectively.

**9.****                                     ****Segment  Reporting**

 
|                                            | ** ** | **Three months ended** | ** **  | **Nine months ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| **(U.S. $ in thousands)**             | ** ** | **June 30, 2006**      | ** **  | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                 | ** ** | ** **                       | ** **  | **Predecessor**                 | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| **Revenue  External**                      |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/ CAM Systems                    |       | 38,291                           |        | 39,001                          |       | 149,767 |   | 137,699 |   |
| Imaging Systems                            |       | 28,806                           |        | 25,863                          |       | 85,924 |   | 72,963 |   |
| Treatment Centers                          |       | 29,440                           |        | 27,379                          |       | 92,448 |   | 95,908 |   |
| Instruments                                |       | 18,709                           |        | 15,461                          |       | 54,856 |   | 48,575 |   |
| **Total**                                  | ** ** | **$**                            | **115,247** | ** **                      | **$**      | **107,705** | ** ** | **$** | **382,995** | ** ** | **$** | **355,144** | ** ** |
| ** **                                 |       |                             |        |                            |       |   |   |   |   |
| **Revenue  Internal**                      |       |                             |        |                            |       |   |   |   |   |
| Imaging Systems                            |       | 12                               |        | 7                               |       | 50 |   | 85 |   |
| Treatment Centers                          |       | 14                               |        | —                          |       | 50 |   | — |   |
| Instruments                                |       | 2,577                            |        | 1,862                           |       | 8,423 |   | 8,653 |   |
| Intercompany elimination                   |       | (2,603                           | )           | (1,870                          | )          | (8,523 | ) | (8,739 | ) |
| **Total**                                  | ** ** | **—**                       |        | **—**                      | ** ** | **—** | ** ** | **—** | ** ** |
|                                       |       |                             |        |                            |       |   |   |   |   |
| **Revenue  Total**                         |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/ CAM Systems                    |       | 38,291                           |        | 39,001                          |       | 149,767 |   | 137,699 |   |
| Imaging Systems                            |       | 28,817                           |        | 25,870                          |       | 85,974 |   | 73,048 |   |
| Treatment Centers                          |       | 29,454                           |        | 27,379                          |       | 92,498 |   | 95,908 |   |
| Instruments                                |       | 21,286                           |        | 17,324                          |       | 63,280 |   | 57,228 |   |
| **Total**                                  | ** ** | **$**                            | **117,849** | ** **                      | **$**      | **109,574** | ** ** | **$** | **391,519** | ** ** | **$** | **363,883** | ** ** |
|                                       |       |                             |        |                            |       |   |   |   |   |
| **Segment  performance measure**           |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/ CAM Systems                    |       | 28,056                           |        | 26,709                          |       | 112,075 |   | 98,677 |   |
| Imaging Systems                            |       | 13,939                           |        | 10,142                          |       | 40,967 |   | 29,377 |   |
| Treatment Centers                          |       | 11,536                           |        | 9,054                           |       | 34,891 |   | 32,996 |   |
| Instruments                                |       | 9,145                            |        | 7,204                           |       | 27,922 |   | 22,691 |   |
| **Total**                                  | ** ** | **$**                            | **62,676**  | ** **                      | **$**      | **53,110** | ** ** | **$** | **215,855** | ** ** | **$** | **183,742** | ** ** |
|                                       |       |                             |        |                            |       |   |   |   |   |
| **Depreciation  and amortization expense** |       |                             |        |                            |       |   |   |   |   |
| Dental CAD/ CAM Systems                    |       | 495                              |        | 732                             |       | 1,439 |   | 1,988 |   |
| Imaging Systems                            |       | 673                              |        | 1,161                           |       | 1,918 |   | 2,890 |   |
| Treatment Centers                          |       | 564                              |        | 673                             |       | 1,767 |   | 2,093 |   |
| Instruments                                |       | 686                              |        | 624                             |       | 1,865 |   | 1,785 |   |
| **Total**                                  | ** ** | **$**                            | **2,417**   | ** **                      | **$**      | **3,190** | ** ** | **$** | **6,989** | ** ** | **$** | **8,756** | ** ** |

 

***Reconciliation ofthe results of the segment performance measure to the consolidated statementsof operations***

Segmentresults are determined based on the Company’s internal management reportingprocess, which reflects the way management views its businesses, and are notprepared in accordance with U.S. GAAP. The following table and discussionprovide a reconciliation of the total results of operations and total assets ofthe Company’s business segments

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under management reporting to the consolidated financial statements.Inter-segment transactions are based on amounts which are believed toapproximate the amounts of transactions with unrelated third parties. 

 
| ** **                                                   | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **(U.S. $ in  thousands)**                              | ** ** | **June 30, 2006**      | ** ** | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                                   | ** ** | ** **                       | ** ** | **Predecessor**                 | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| **Revenue**                                                  |       |                             |       |                            |       |   |   |   |   |
| Total segments                                               |       | $                                | 115,247    |                            | $          | 107,705 |   | $ | 382,995 |   | $ | 355,144 |   |
| Electronic centre and  corporate                             |       | 138                              |       | 260                             |       | 169 |   | 971 |   |
| Differences management  accounts vs. U.S.-GAAP               |       | 1,952                            |       | (1,593                          | )          | 1,898 |   | 2,170 |   |
| Consolidated revenue                                         |       | 117,337                          | ** ** | 106,372                         | ** ** | 385,062 | ** ** | 358,285 |   |
| **Depreciation and amortization**                            |       |                             |       |                            |       |   |   |   |   |
| Total segments                                               |       | 2,417                            |       | 3,190                           |       | 6,988 |   | 8,755 |   |
| Electronic centre and  corporate                             |       | 461                              |       | 292                             |       | 1,362 |   | 1,180 |   |
| Differences management  accounts vs. U.S.-GAAP               |       | 13,054                           |       | 11,094                          |       | 37,617 |   | 34,220 |   |
| Consolidated  depreciation and amortization                  | ** ** | **$**                            | **15,932** | ** **                      | **$**      | **14,576** | ** ** | **$** | **45,967** | ** ** | **$** | **44,155** | ** ** |
| **Segment performance measure**                              |       |                             |       |                            |       |   |   |   |   |
| Total segments                                               |       | 62,676                           |       | 53,110                          |       | 215,855 |   | 183,742 |   |
| Electronic centre and  corporate                             |       | 719                              |       | 1,058                           |       | 1,495 |   | 2,323 |   |
| Differences management  accounts vs. U.S.-GAAP               |       | (11,623                          | )          | (8,841                          | )          | (34,333 | ) | (27,242 | ) |
| **Consolidated gross profit**                                | ** ** | **$**                            | **51,772** | ** **                      | **$**      | **45,326** | ** ** | **$** | **183,017** | ** ** | **$** | **158,822** | ** ** |
| Selling, general and  administrative expense                 |       | 33,470                           |       | 32,677                          |       | 101,112 |   | 93,236 |   |
| Research and  development                                    |       | 8,166                            |       | 6,740                           |       | 23,139 |   | 21,700 |   |
| Provision for doubtful  accounts and notes receivables       |       | (138                             | )          | (130                            | )          | 44 |   | (127 | ) |
| Write off of in-process  research and development            |       | 6,000                            |       | —                          |       | 6,000 |   | — |   |
| Other operating expense  (income), net                       |       | 622                              |       | (471                            | )          | 2,306 |   | (384 | ) |
| Foreign currency  transactions (gain) loss                   |       | (11,361                          | )          | 8,578                           |       | (9,481 | ) | 749 |   |
| Unrealized (gain) loss  on derivative instruments            |       | (2,397                           | )          | 4,304                           |       | (3,769 | ) | 4,383 |   |
| Interest expense, net                                        |       | 14,893                           |       | 7,035                           |       | 43,893 |   | 22,774 |   |
| Other income                                                 |       | —                           |       | (129                            | )          | — |   | (129 | ) |
| **Income (loss) before income taxes and minority  interest** | ** ** | **$**                            | **2,517**  | ** **                      | **$**      | **(13,278** | **)** | **$** | **19,773** | ** ** | **$** | **16,620** | ** ** |

 

**10.****                              ****Intangible Assets**

Thefollowing table presents details of intangible assets and related accumulatedamortization and goodwill: 
| As of June 30, 2006 | ** ** | ** ** | ** **    | **Accumulated**  | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|---------------|------------------|------------|------------|------------|
| **(U.S. $ in thousands)**          | ** ** | **Gross**  | ** **    | **amortization** | ** ** | **Net**    | ** ** |
|                                    |       |       |          |             |       |       |       |
| Patents and  licenses                   |       | 132,436    |          | 13,658           |       | 118,778    |       |
| Trademarks                              |       | 124,600    |          | 3                |       | 124,597    |       |
| Technologies                            |       | 415,300    |          | 34,992           |       | 380,308    |       |
| Dealer  relationships                   |       | 13,880     |          | 1,083            |       | 12,797     |       |
|                                    |       |       |          |             |       |       |       |
| Goodwill                                |       | 615,621    |          | —           |       | 615,621    |       |
| **Total intangible assets**             | ** ** | **$**      | **1,301,837** | ** **       | **$**      | **49,736** | ** ** | **$** | **1,252,101** | ** ** |
|                                         |            |            |               |                  |            |            |            |  |  |  |

 
| As of September 30, 2005 | ** ** | ** ** | ** **  | **Accumulated**  | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|-------------|------------------|------------|------------|------------|
| **(U.S. $ in thousands)**               | ** ** | **Gross**  | ** **  | **amortization** | ** ** | **Net**    | ** ** |
|                                         |       |       |        |             |       |       |       |
| Patents and  licenses                        |       | 124,510    |        | 2,263            |       | 122,247    |       |
| Trademarks                                   |       | 93,403     |        | —           |       | 93,403     |       |
| Technologies and  dealer relationships       |       | 283,381    |        | 9,589            |       | 273,792    |       |
|                                         |       | 501,294    |        | 11,852           |       | 489,442    |       |
|                                         |       |       |        |             |       |       |       |
| Goodwill                                     |       | 468,769    |        | —           |       | 468,769    |       |
| **Total intangible assets**                  | ** ** | **$**      | **970,063** | ** **       | **$**      | **11,852** | ** ** | **$** | **958,211** | ** ** |
|                                              |            |            |             |                  |            |            |            |  |  |  |

 

Thechange in the value of goodwill from September 30, 2005 to June 30,2006 is mainly related to the Exchange as well as differences in exchange rate.The goodwill generated by the Exchange was allocated to the Imaging Systemssegment.

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Theaggregate amortization expense for amortizable intangible assets for the threeand nine months periods ended June 30, 2006 was $13,281 and $ 36,397respectively.

 

**11.          ****Income****(loss) per share**

The computation of basic anddiluted income (loss) per share is as follows:
| **(U.S. $ in thousands  except share and per share** | ** ** | **Three months  ended June 30,** | ** ** | **Nine months  ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| **information)**                                                                        | ** ** | **2006**                                        | ** ** | **2005**                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                              | ** ** | ** **                                      | ** ** | **(Predecessor)**                              | ** ** | ** ** | ** ** | **(Predecessor)** | ** ** |
| Net (loss) income                                                                       |       | (5,511                                          | )          | (9,808                                         | )          | 2,243 |   | 11,126 |   |
|                                                                                    |       |                                            |       |                                           |       |   |   |   |   |
| Weighted average shares outstanding – basic                                        |       | 38,908,289                                      |       | N/A                                            |       | 37,617,750 |   | N/A |   |
| Dilutive effect of stock options                                                        |       | -                                               |       | N/A                                            |       | 467,482 |   | N/A |   |
| Weighted average shares outstanding – diluted                                      |       | 38,908,289                                      |       | N/A                                            |       | 38,085,232 |   | N/A |   |
|                                                                                    |       |                                            |       |                                           |       |   |   |   |   |
| (Loss) income per share                                                                 |       |                                            |       |                                           |       |   |   |   |   |
| Basic                                                                                   |       | (0.14                                           | )          | N/A                                            |       | 0.06 |   | N/A |   |
| Diluted                                                                                 |       | (0.14                                           | )          | N/A                                            |       | 0.06 |   | N/A |   |

 

Stock options to acquire2,899,847 shares of SIRONA’s common stock were not included in the computationof diluted loss per share for the three months ended June 30, 2006, because theeffect of the options is antidilutive due to the loss recognized for theperiod. Stock options to acquire 60,000 shares of SIRONA’s common stock thatwere granted in connection with the Directors Plan were not included in thecomputation of diluted earnings per share for the nine months ended June 30,2006, because the options’ underlying exercise prices were greater than theaverage market price of SIRONA’s common stock for the period.

Share and per share informationis not presented for the Predecessor entity for the three and nine monthperiods ended June 30, 2005 because such information is not meaningful.

**12.          ****Deferred****income**

Deferred income comprises apayment of $100 million made by a distributor in the U.S. to the Company inJuly 2005 for the extension of its exclusive right to sell CEREC systems in theU.S. and Canada. The payment will be amortized on a straight line basis over 10years starting October 1, 2007 when the term of the right begins. In the eventof termination of the distribution agreement for factors such as force majeure,the Company's insolvency, breach of exclusivity obligations by theCompany, or failure by the distributor to meet its performanceobligations, the Company would be required to refund to the distributor a portionof the $100 million as liquidated damages.

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**ITEM 2.****                 MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This discussion contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. Forward-lookingstatements typically are identified by the use of terms such as “may,” “will,” “should,”“expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words,although some forward-looking statements are expressed differently. You shouldconsider statements that contain these words carefully because they describethe Company’s expectations, plans, strategies and goals and beliefs concerningfuture business conditions, the Company’s results of operations, financialposition, and its business outlook or state other “forward-looking” informationbased on currently available information. The factors listed under Item 1A.Risk Factors provide a discussion of the most significant risks, uncertaintiesand events that could cause the Company’s actual results to differ materiallyfrom the expectations expressed in its forward-looking statements.

**Overview**

SIRONA is a leading global manufacturer of high-quality dental equipmentand technologies. SIRONA focuses on developing a broad portfolio of innovativesystems and solutions for dentists globally. SIRONA has been an innovativeleader and has served equipment dealers and dentists worldwide for more than125 years. SIRONA’s global headquarters and principle manufacturing facilityare located in Bensheim, Germany. SIRONA also maintains U.S. headquarters inLong Island City, New York. SIRONA had approximately 1,900 employees as of June30, 2006. SIRONA manages its business on both a product and geographic basisand has four reporting segments: Dental CAD/CAM Systems, Imaging Systems,Treatment Centers and Instruments. The global brand awareness is strong andproducts from each category are marketed in all geographic sales regions.SIRONA distributes its products globally to dental practices, clinics andlaboratories through an international network of more than 300 independentdistributors. SIRONA commits significant resources to research and development,with a particular focus on developing products that offer new diagnostic andtreatment options, while increasing user comfort and streamlining processefficiency. In recent years, SIRONA has consistently spent more than 6% of itstotal revenue per year on research and development and has the largest R&Dteam in the industry. SIRONA also co-operates in its research efforts withpartners in research facilities and dental practices around the globe.

***Focus on the U.S. Dental Market***

From September 30, 2003 to September 30, 2005 SIRONA has experiencedstrong revenue growth with U.S. dollar revenue increasing on average by 37%annually. Several products that have been launched during that period havegenerated significant interest in the U.S. market, including, but not limitedto, CEREC, inlab, inEos, the ORTHOPHOS XG imaging line, C8+ and electricalHandpieces.

SIRONA works together with large distributors in the U.S. market,including Patterson Dental and Henry Schein, accounting for 29% and 18%,respectively, of SIRONA’s global revenue for the nine month period ending June30, 2006. The relationship with Henry Schein was expanded beyond the Europeanmarkets to the United States in January 2005. Patterson Dental made a paymentof $ 100 million to SIRONA in July 2005 in exchange for the exclusivedistribution right for CEREC CAD/CAM products in the United States and Canadauntil 2017. The amount SIRONA received was recorded as deferred revenue andwill be recognized on a straight-line basis (which is deemed to reflect thepattern of performance) commencing at the beginning of the extension of theexclusivity period in fiscal 2008.

***Focus on Global Expansion***

In addition to increased U.S. market penetration, SIRONA has pursuedexpansion in markets outside the U.S. Over the last three years, sales inmarkets outside the U.S. grew on average by 18% annually. To support thisgrowth, SIRONA expanded its local presence and distribution channels byestablishing new sales and service locations in Spain, France and the UnitedKingdom in 2004, in Japan and Australia in 2005 and in China in 2006. Theexpansion resulted in increased sales, gross profit and SG&A expense.

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**SignificantFactors That Affected SIRONA’s Results of Operations**

***Changes in Ownership of SIRONA***

The MDP Transaction on June 30, 2005 resulted in a change of ownershipthat was accounted for in a manner similar to a business combination under U.S.GAAP.

The results of operations of SIRONA and its legal, tax and financingstructure have changed substantially as a result of the MDP Transaction. SIRONA’sbusiness was acquired by a newly-formed entity and SIRONA incurred substantialfees and expenses not related to its ongoing operations. The assets andliabilities acquired were partially stepped up to fair value and a relateddeferred tax liability was recorded. The excess of the total purchase priceover the fair value of the net assets acquired, including IPR&D projectswhich were expensed at the date of closing, was allocated to goodwill and issubject to periodic impairment testing.

SIRONA’s cost of goods sold, research and development, selling, generaland administrative expense and operating results have been and will continue tobe materially affected by higher depreciation and amortization costs resultingfrom the step-up to fair value of SIRONA’s assets and liabilities. Taxes,interest and net income have also been and will continue to be substantiallyimpacted by the structural changes resulting from the MDP Transaction.

***Acquisition of Schick Technologies Inc.***

On June 20, 2006 the reverse merger with Schick Technologies Inc. wascompleted (see note 3 to the interim financial statements). The results ofoperations for the three and nine months periods ended June 30, 2006 as well asthe balance sheet as of June 30, 2006 have been affected by thisacquisition. The assets and liabilities acquired were stepped up to their fairvalues and a related deferred tax liability was recorded. The excess of thetotal purchase price over the fair value of the net assets acquired, includingIPR&D projects which were expensed at the acquisition date, was allocatedto goodwill and is subject to periodic impairment testing.

SIRONA’s cost of goods sold, research and development, selling, generaland administrative expense and operating results will be materially affected byhigher depreciation and amortization costs resulting from the inclusion ofSchick in its consolidated accounts. Taxes, interest and net income will alsobe impacted by the structural changes resulting from the reverse-mergertransaction. The acquisition is expected to generate operating synergies of $5.0 to $ 7.0 million annually beginning 12 to 24 months after June 20, 2006.

***Fluctuations in U.S. Dollar/Euro Exchange Rate***

Although the U.S. dollar is SIRONA’s reporting currency, its functionalcurrency varies depending on the country of operation. During the nine monthperiod ending June 30, 2006 approximately 65% of SIRONA’s revenue andapproximately 85% of its expenses were denominated in Euro. During the periodsunder review, the U.S. dollar/Euro exchange rate used to calculate itemsincluded in SIRONA’s financial statements varied from a low of 1.1834 to a highof 1.2710. To manage the effect of this exchange rate variability on itsoperating results, SIRONA has entered into foreign exchange forward contracts.As of June 30, 2006 these contracts had notional amounts totalling $ 30.4million. Because these agreements are relatively short-term (generally 6months), continued fluctuations in the U.S. dollar could materially affectSIRONA’s results of operations. A portion of SIRONA’s credit facility and thedeferred income related to the exclusivity payment by Patterson are denominatedin U.S. dollars and are subject to revaluation into Euro, the functionalcurrency of the applicable SIRONA entity, at each balance sheet date. Fluctuationsin currency exchange rates related to transactions denominated in currenciesother than the functional currency of the respective SIRONA entity arereflected within SIRONA’s statements of operations. These fluctuations may besignificant in any period due to changes in the exchange rates between the Euroand the U.S. dollar.

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***Fluctuations in Quarterly Operating Results***

SIRONA’s quarterly operating results have varied in the past and arelikely to vary in the future. These variations result from a number of factors,many of which are substantially outside its control, including:

·              thetiming of new product introductions by SIRONA and its competitors;

·              developmentsin government reimbursement policies;

·              changesin product mix;

·              bi-annualtrade shows;

·              SIRONA’sability to supply products to meet customer demand;

·              fluctuationsin manufacturing costs; and

·              incometax incentives.

 

Due to the variations which SIRONA has experienced in its quarterlyresults, it does not believe that period-to-period comparisons of results ofoperations of SIRONA are necessarily meaningful or reliable as indicators offuture performance.

***Taxes***

The German tax authority is currently examining the Company’s taxreturns for the years 2001 to 2004. The German tax authority has not issued aformal notice of deficiency and the Company would contest and proposedadjustments. While the final resolution of tax matters may result in tax assetsand liabilities which are significantly higher or lower than the recordedamounts, management currently believes that the expected resolution will nothave a material effect on the Company’s financial position, results ofoperations or liquidity.

**ThreeMonths Ended June 30, 2006 Compared to Three Months Ended June 30, 2005**

***Revenue***

Revenue for the three months ended June 30, 2006 was $ 117.3 million, anincrease of $ 10.9 million or 10.2%, as compared with the three months endedJune 30, 2005. On a constant currency basis, adjusting for the fluctuations inthe US$/€ rate, total revenue increased 10.0%, with growth rates for theInstrument segment of 22%, the Imaging Systems segment of 19%, the TreatmentCenter segment of 9% and the Dental CAD/CAM Systems segment of 1%. TheInstrument segment revenue increase was driven by new products, such as theSirolaser and SIROPure instruments. The Imaging Systems segment benefited fromthe trend towards increasing digitization of dental practices. Imaging Systemssegment revenue was higher primarily due to the success of the new panoramicproduct line ORTHOPHOS XG, which was introduced into the marketplace in fiscalyear 2004 and the impact of Schick whose operations have been included sinceJune 20, 2006. Dental CAD/CAM Systems sales were slightly above prior year’slevel, with the third quarter 2005 performance being positively impacted by thebi-annual international trade show IDS in Cologne, Germany. All revenueincreases were volume driven, while prices remained stable.

Revenue for the three months ended June 30, 2006 in the United Statesincreased 29%. All segments contributed to this development. Revenue outsidethe United States increased 4% on a constant currency basis.

***Cost of Sales***

Cost of sales was $ 65.6 million for the three months ended June30, 2006, an increase of $ 4.5 million or 7.4 %, as compared with thethree months ended June 30, 2005. Cost of sales included amortization anddepreciation expense resulting from the step-up to fair values of inventoriesand tangible and intangible assets, which was $ 14.2 million for the threemonths ended June 30, 2006, compared with $ 10.3 million for the three monthsended June 30, 2005. The year-over-year increase in amortization anddepreciation expense resulted from the fair value adjustments related to theMDP Transaction and the acquisition of Schick.

Excluding these amounts, cost of sales as a percentage of revenuedecreased to 43.8% for the three months ended June 30, 2006 from 47.7% for thethree months ended June 30, 2005 and gross profit as a percentage of revenue increasedby 3.9% percentage points from 52.3% to 56.2%. This increase in gross profitmargin was mainly due to a year-over-year increase in gross profit margins inall of the segments. The improvement was attributable to economies of scaleresulting from the volume increases, which have in turn led to sourcingbenefits as well as fixed cost leverage. In addition, the improved costposition of the new panoramic product line over the predecessor product as wellas the impact of the Schick acquisition were the main drivers of the improvedgross profit margin in the Imaging Systems segment.

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***Selling, General andAdministrative***

Forthe three months ended June 30, 2006, SG&A expense was $ 33.5 million, anincrease of $ 0.8 million or 2.4%, as compared with the three months endedJune 30, 2005. SG&A expense for both periods included amortization anddepreciation expense resulting from the step-up to fair values of tangible andintangible assets in the amount of $ 0.9 million. Excluding these amounts, as apercentage of revenue, SG&A expense decreased to 27.8% for the three monthsended June 30, 2006 as compared with 29.9% for the same period last year. Thethree months ended June 30, 2005 were impacted by expenses related to thebi-annual international trade show IDS in Cologne, Germany as well as productlaunch expenses in connection with that show.

***Research and Development***

R&D expense for the three months ended June 30, 2006 was $ 8.2million, an increase of $ 1.4 million or 21.2% as compared with the threemonths ended June 30, 2005. R&D activity in both periods focussed on newproducts or product enhancements in each segment. The increase was mainlydriven by the development of the 3D panoramic imaging unit, Galileos, in theImaging Systems and by the Treatment Units segments.

***Gain and Loss on Foreign Currency Transactions and Unrealized Gain andLoss on Derivative Instruments***

Gain and loss on foreign currency transactions and unrealized gain andloss on derivative instruments for the three months ended June 30, 2006 andJune 30, 2005 amounted to a gain of $ 13.8 million and a loss of $ 12.9million, respectively. Included therein is an unrealized foreign currency gainof $ 6.1 million and a loss of $ 10.1 million on the U.S. dollardenominated portion of the bank debt, for the three months ended June 30, 2006and June 30, 2005, respectively. An unrealized foreign currency gain of $ 4.9on the U.S. dollar denominated portion of the deferred income resulting fromthe exclusivity payment is also included in the three months ended June 30,2006. This foreign currency gain or loss resulted from translation adjustmentsto the carrying value of Tranche A of SIRONA’s U.S. dollar denominated bankdebt and deferred income, due to currency fluctuations which did not affectcash flow.

***Interest Expense***

Net interest expense for the three months ended June 30, 2006 was $ 14.9million, compared to $ 7.0 million for the three months ended June 30, 2005.This increase was primarily due to higher average debt balances following theMDP Transaction and includes $ 1.2 million of amortization of capitalizedfinancing fees.

***Write-off of In-process Research and Development***

Write-off of IPR&D for the three months ended June 30, 2006 was $6.0 million. The write-off was recorded as a result of the allocation of theacquisition purchase price for the Schick Transaction. This was a one-timecharge that will not have a continued impact on SIRONA’s future results.IPR&D projects included in the amount written off primarily relate toenhancements of the intra-oral sensor technology. The estimated costs tocomplete the significant projects as of June 20, 2006 were $ 1.6 million. As ofJune 20, 2006 the projects were at the starting points of the productdevelopment phase with the remaining steps to the product release phase beingthe finalization of project development including working models, beta testingand regulatory approvals. It is anticipated that the majority of these projectswill be completed and begin to generate cash in calendar year 2007. There areno specific risks and uncertainties associated with these projects; however,the general risks as discussed under Risk Factors under Part II, Item 1A shouldbe noted.

***Provision for IncomeTaxes***

For the three months ended June 30, 2006 and 2005, SIRONA’s income(loss) before income taxes and minority interest was $ 2.5 million and $ (13.3)million, respectively. The average statutory tax rate for these three monthperiods is 36.9%, which would result in a provision (benefit) of $ 0.9 millionand $ (4.9) million, respectively. The actual tax provision (benefit) was $ 8.0million and $ (3.2) million, respectively. The tax provision (benefit) for thethree months ended June 30, 2006 and June 30, 2005 was adversely impacted by thenon-tax deductible portion of interest expense for purpose of the German tradetax. The income tax provision for the three months ended June 30, 2006 was alsoadversely impacted by foreign income for which no foreign tax credit wasavailable and the non-deductible charge for the write-off of IPR&Dassociated with the Schick acquisition.

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***Net income***

SIRONA’s net loss for the three months ended June 30, 2006 was $ 5.5million, an increase of $ 4.3 million or 44.1%, as compared with the threemonths ended June 30, 2005. As described above, SIRONA’s net loss wassignificantly impacted by amortization and depreciation expense resulting fromstep-up to fair values of intangible and tangible assets related to the MDPTransaction and the Exchange of $ 9.5 million (net of a tax impact of $ 5.6million), write-off of IPR&D of $ 6.0 million (with no tax impact) and theunrealized gains on the Tranche A dollar denominated bank debt as well as thedeferred income from the exclusivity payment of $ 6.9 million (net of a taximpact of $ 4.1 million). Excluding these items in both periods, net incomeincreased due to higher revenue and improved margins, only partially offset byhigher SG&A and interest expense.

**NineMonths Ended June 30, 2006 Compared to Nine Months Ended June 30, 2005**

***Revenue***

Revenue for the nine months ended June 30, 2006 was $ 385.1 million, anincrease of $ 26.8 million or 7.5%, as compared with the nine months ended June30, 2005. On a constant currency basis, adjusting for the fluctuations in theUS$/€ rate, total revenue increased 11.9%, with growth rates for the ImagingSystems Segment of 23%, the Instrument segment of 19%, the Dental CAD/CAMSystems Segment of 12%, and essentially no change for the Treatment Centersegment. The Instrument segment revenue increase was driven by new products,such as the Sirolaser and SIROPure instruments. The Imaging Systems segmentbenefited from the trend towards increasing digitization of dental practices,the success of the new panoramic product line ORTHOPHOS XG and the impact ofSchick whose operations have been included since June 20, 2006. Dental CAD/CAMSystems revenue benefited from the key trends in the dental industry, such asincreased emphasis on efficiency and productivity, and patients’ growingemphasis on aesthetics. All revenue increases were volume driven, while pricesremained stable.

Revenue for the nine months ended June 30, 2006 in the United Statesincreased 15%. All segments contributed to this development. Revenue outsidethe United States increased 11% on a constant currency basis.

***Cost of Sales***

Cost of sales was $ 202.0 million for the nine months ended June 30,2006, an increase of $ 2.6 million or 1.3%, as compared with the nine monthsended June 30, 2005. Cost of sales included amortization and depreciationexpense resulting from the step-up to fair values of inventories and tangibleand intangible assets, which was $ 38.2 million for the nine months ended June30, 2006, compared with $ 31.1 million for the nine months ended June 30, 2005.The period-over-period increase in amortization and depreciation expenseresulted from the fair value adjustments related to the MDP Transaction and theSchick acquisition.

Excluding these amounts, cost of sales as a percentage of revenuedecreased to 42.5% for the nine months ended June 30, 2006 from 47.0% for thenine months ended June 30, 2005 and gross profit as a percentage of revenueincreased by 4.5% percentage points from 53.0% to 57.5%. This increase in grossprofit margin was mainly due to an increase in revenue from product groups withhigher gross profit margins as well as a period-over-period increase in grossprofit margins in all  of the segments.The improvement was attributable to economies of scale resulting from volumeincreases, which have in turn led to sourcing benefits as well as fixed cost leverage.In addition, the improved cost position of the new panoramic product line overthe predecessor product as well as the impact of the Schick acquisition werethe main drivers of the improved gross profit margin in the Imaging Systemssegment.

***Selling, General andAdministrative***

Forthe nine months ended June 30, 2006, SG&A expense was $ 101.1 million, anincrease of $ 7.9 million or 8.4%, as compared with the nine months ended June30, 2005. SG&A expense included amortization and depreciation expenseresulting from the step-up to fair values of tangible and intangible assets inthe amount of $1.1 million and $ 1.6 million, respectively. Excluding theseamounts, as a percentage of revenue, SG&A expense increased to 26.0% forthe nine months ended June 30, 2006 as compared with 25.6% for the prior yearperiod. The period-over-period increase in SG&A was due to SIRONA’sinvestment in expanded presence in various countries, including the UnitedStates, Japan, and Australia. SIRONA anticipates that it will continue toexpand its local presence to support growth opportunities.

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***Research and Development***

R&D expense for the nine months ended June 30, 2006 was $ 23.1million, an increase of $ 1.4 million or 6.6% as compared with the nine monthsended June 30, 2005. R&D activity in both periods focussed on new productsor product enhancements in each segment. The increase was mainly driven by thedevelopment of the 3D panoramic imaging unit, Galileos in the Imaging Systemsand by the Dental CAD/CAM Systems segments.

***Gain and Loss on Foreign Currency Transactions and Unrealized Gain andLoss on Derivative Instruments***

Gain and loss on foreign currency transactions and unrealized gain andloss on derivative instruments for the nine months ended June 30, 2006 and June30, 2005 amounted to a gain of $ 13.2 million and a loss of $ 5.1 million,respectively. Included therein is an unrealized foreign currency gain of$ 6.5 million and a loss of $ 3.0 million on the U.S. dollardenominated portion of the bank debt for the nine months ended June 30, 2006and June 30, 2005, respectively. An unrealized foreign currency gain of $ 5.1on the U.S. dollar denominated deferred income, resulting from the exclusivitypayment, is also included in the nine months period ended June 30, 2006. Thisforeign currency gain or loss resulted from translation adjustments to thecarrying value of Tranche A of SIRONA’s U.S. dollar denominated bank debt anddeferred income due to currency fluctuations which did not affect cash flow.

***Interest Expense***

Net interest expense for the nine months ended June 30, 2006 was $ 43.9million, compared to $ 22.8 million for the nine months ended June 30, 2005.This increase was primarily due to higher average debt balances following theMDP Transaction and includes $ 5.3 million of amortization of capitalizedfinancing fees.

***Write-off of In-process Research and Development***

Write-off of IPR&D for the nine months ended June 30, 2006 was $ 6million. The write-off was recorded as a result of the allocation of theacquisition purchase price for the Schick Transaction. This was a one-timecharge that will not have a continued impact on SIRONA’s future results.IPR&D projects included in the amount written off primarily relate toenhancements of the intra-oral sensor technology. The estimated costs tocomplete the significant projects as of June 20, 2006 were $ 1.6 million. As ofJune 20, 2006 the projects were at the starting points of the productdevelopment phase with the remaining steps to the product release phase beingthe finalization of project development including working models, beta testingand regulatory approvals. It is anticipated that the majority of these projectswill be completed and begin to generate cash in calendar year 2007. There areno specific risks and uncertainties associated with these projects; however thegeneral risks to the combined company as discussed under Risk Factors in PartII, Item 1A.

***Provision for Income Taxes***

For the nine months ended June 30, 2006 and 2005, SIRONA’s income beforeincome taxes and minority interest was $ 19.87 million and $ 16.6 million,respectively. The average statutory tax rate for these nine month periods is36.9%, which would result in a provision of $ 7.3 million and $ 6.1 million,respectively. The actual tax provision was $ 17.5 million and $ 5.4 million,respectively. The tax provision for the nine months ended June 30, 2006 andJune 30, 2005 was adversely impacted by the non-tax deductible portion ofinterest expense for purpose of the German trade tax. The income tax provisionfor the nine months ended June 30, 2006 was also adversely impacted by foreignincome for which no foreign tax credit was available and the non-deductiblecharge for the write-off of IPR&D associated with the Schick acquisition.

***Net income***

SIRONA’snet income for the nine months ended June 30, 2006 was $ 2.2 million, adecrease of $ 8.9 million or 80.2%, as compared with the nine months ended June30, 2005. As described above, SIRONA’s net income was significantly impacted bythe MDP transaction, the related financing, and the Exchange. For the ninemonth period ended June 30, 2006, amortization and depreciation expenseresulting from step-up to fair values of intangible and tangible assets relatedto the MDP Transaction and the Exchange of $ 24.8 million (net of a tax impactof $ 14.5 million), the write-off of IPR&D of $ 6.0 million (withno tax impact) and the unrealized gains on the Tranche A dollar denominatedbank debt as well as the deferred income from the exclusivity payment of$ 7.3 million (net of a tax impact of $ 4.2 million). Excludingthese items in both periods, net income increased due to higher revenue andimproved margins, only partially offset by higher SG&A and interest expense.

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**Liquidity and Capital Resources**

Historically, SIRONA’s principal uses of cash, apartfrom operating requirements, including research and development expenses, havebeen for interest payments, debt repayments, and acquisitions. Operatingcapital expenditures are approximately equal to operating depreciation(excluding any effects from the increased amortization and depreciation expenseresulting from the step-up to fair values of SIRONA’s and Schick’s assets andliabilities required under purchase accounting). SIRONA’s management believesthat SIRONA’s working capital is sufficient for its present requirements.

***Cash Flow Data and Other Financial Data***

**Cash FlowData:**

 
|                                         | ** ** | **Nine months ended** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|
| **(U.S. $ in thousands)**          | ** ** | **June 30, 2006**     | ** ** | **June 30, 2005** | ** ** |
| ** **                              | ** ** | ** **                      | ** ** | **Predecessor** | ** ** |
| Cash flows  provided by (used in):      |       |                            |       |   |   |
| Operating  activities                   |       | 77,437                          |       | 54,806 |   |
| Investing  activities                   |       | 4,079                           |       | (37,408 | ) |
| Financing  activities                   |       | (73,962                         | )          | (14,624 | ) |
|                                    |       |                            |       |   |   |
| **Increase in cash during the  period** | ** ** | **$**                           | **7,554**  | ** ** | **$** | **2,774** | ** ** |
|                                         |            |                                 |            |  |  |  |  |

 

**Other Financial Data:**

**(unaudited)**

 
| ** **                                                                               | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **(U.S. $ in  thousands)**                                                          | ** ** | **June 30, 2006**      | ** ** | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| ** **                                                                               | ** ** | ** **                       | ** ** | **Predecessor**                 | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| **EBITDA**                                                                               | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income**                                                                           | ** ** | **(5,511**                       | **)**      | **(9,808**                      | **)**      | **2,243** | ** ** | **11,126** | ** ** |
| (Provision)/Benefit for  income taxes                                                    |       | 7,983                            |       | (3,234                          | )          | 17,463 |   | 5,444 |   |
| Interest expense, net                                                                    |       | 14,893                           |       | 7,035                           |       | 43,893 |   | 22,774 |   |
| Depreciation                                                                             |       | 2,651                            |       | 4,375                           |       | 9,570 |   | 12,738 |   |
| Amortization                                                                             |       | 13,281                           |       | 10,201                          |       | 36,397 |   | 31,417 |   |
|                                                                                     |       |                             |       |                            |       |   |   |   |   |
| **EBITDA**                                                                               | ** ** | **33,297**                       | ** ** | **8,569**                       | ** ** | **109,566** | ** ** | **83,499** | ** ** |
| ** **                                                                               | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Transaction related costs and  non-cash charges included in EBITDA**                   | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                               | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Transaction related  costs                                                               |       | —                           |       | —                          |       | — |   | 35 |   |
| IPR&D                                                                                |       | 6,000                            |       | —                          |       | 6,000 |   | — |   |
| Fair value increase in  inventory                                                        |       | 441                              |       | —                          |       | 441 |   | 844 |   |
| Option expense                                                                           |       | 279                              |       | —                          |       | 279 |   | — |   |
| Unrealized, non-cash  gain on the revaluation of the $ denominated exclusivity fee  |       | (4,949                           | )          | —                          |       | (5,123 | ) | — |   |
| Unrealized, non-cash  (gain)/loss on the revaluation of the $ denominated bank loan |       | (6,053                           | )          | 10,133                          |       | (6,496 | ) | 2,999 |   |
|                                                                                     |       | (4,282                           | )          | 10,133                          |       | (4,899 | ) | 3,878 |   |

 

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(1)   EBITDA is defined as net income (loss) beforeinterest, taxes, depreciation, and amortization. SIRONA believes that EBITDA isuseful to investors because it is frequently used by security analysts,investors and other interested parties to evaluate companies in its industry.EBITDA is not a recognized term under U.S. GAAP, should not be viewed inisolation and does not purport to be an alternative to net income (loss) as anindicator of operating performance or an alternative to cash flows fromoperating activities as a measure of liquidity. There are material limitationsassociated with making the adjustments to Sirona’s earnings to calculate EBITDAand using this non-U.S. GAAP financial measure as compared to the most directlycomparable U.S. GAAP financial measure. For instance, EBITDA does not include:

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·      interest expense, and because Sirona hasborrowed money in order to finance its operations, interest expense is a necessaryelement of its costs and ability to generate revenue;

·      depreciation and amortization expense, andbecause Sirona uses capital assets, depreciation and amortization expense is anecessary element of its costs and ability to generate revenue; and

·      tax expense, and because the payment of taxesis part of Sirona’s operations, tax expense is a necessary element of costs andimpacts Sirona’s ability to operate.

Additionally, EBITDA is notintended to be a measure of cash flow for Sirona’s discretionary use, as itdoes not consider certain cash requirements, such as capital expenditures,contractual commitments, interest payments, tax payments and debt servicerequirements. Sirona compensates for these limitations by relying primarily onits GAAP results and using EBITDA only supplementally. Because not allcompanies use identical calculations, this presentation of EBITDA may not becomparable to other similarly titled measures for other companies.

(2)   Transaction related and non-cash chargesrepresent (a) the amounts related to the fair value increases in inventoryand in-process research and development resulting from the Exchange, and (b) theforeign exchange (gain) loss on bank debt resulting from transactionadjustments to the carrying value of a portion of Sirona’s U.S. dollardenominated debt as well as the U.S. dollar denominated deferred income due tocurrency fluctuations, and (c) transaction related costs incurred inconnection with the MDP Transaction and the Exchange.

***Net Cash Provided by Operating Activities***

Net cash provided by operating activities representsnet cash from operations, returns on investments, interest and taxation.

Net cash provided by operating activities was $ 77.4million for the nine months ended June 30, 2006, compared to net cashprovided by operating activities of $ 54.8 million for the nine months ended June 30,2005. The primary contributors to the increase in cash flow from operations inthe nine months ended June 30, 2006 were (1) the decrease in othernon-current assets and an increase in other non-current liabilities, and (2) anincrease in income taxes payable, net of changes in deferred taxes.

***Net Cash (Provided by) Used in Investing Activities***

Net cash used in investing activities represents cashused for capital expenditures, financial investments, acquisitions anddisposals.

Net cash provided by (used in) investing activitieswas $ 4.1 million for the nine months ended June 30, 2006, compared with $37.4 million for the nine months ended June 30, 2005. The primarycontributors to the investing cash inflow in the nine months ended June 30,2006 were (1) the Schick acquisition with $ 14.3 million and (2) capitalexpenditures of $ 11.7 million primarily related to property, plant andequipment and software developed for sale. The primary contributors of theinvesting cash outflow in the nine months ended June 30, 2005 were (1) thedeferred purchase price payment in December 2004 of $ 25.7 million relatedto the EQT transaction, which closed prior to the MDP Transaction, and (2) capitalexpenditure of $ 11.6 million. SIRONA’s capital expenditures relate toproperty, plant and equipment and software developed for sale.

***Net Cash Used in Financing Activities***

Net cash used in financing activities was $ 74.0 millionfor the nine months ended June 30, 2006, compared to net cash used infinancing activities of $ 14.6 million for the nine months period ended June 30,2005. The cash used in financing activities in both nine month periods was usedfor scheduled and un-scheduled repayments of the then existing bank loans.

SIRONA believes that its operating cash flows andavailable cash (including restricted cash), together with its long-term debtborrowings, will be sufficient for the foreseeable future to fund its workingcapital needs, research and development expenses, including but not limited tothe acquired in-process research and development described in this document.

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# **ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We are exposed to various market risks, includingchanges in foreign currency exchange rates and interest rates. Market risk isthe potential loss arising from adverse changes in market rates and prices,such as foreign currency exchange and interest rates. As some of our indebtednessaccrues interest at variable rates, we have exposure to volatility in futurecash flows and earnings associated with variable interest rate payments.

Also, all of our revenues and a substantial portionof our operating costs are earned and paid in Euros but we pay interest andprincipal obligations on some of our indebtedness in U.S. dollars. As of June 30,2006,  $ 112.7 million, or 21.5% of ourlong-term debt, was denominated in U.S. dollars. As a result, we haveexposure to volatility in future cash flows and earnings associated withchanges in foreign exchange rates on payments of principal and interest on aportion of our indebtedness.

To mitigate the risk from these exposures we haveentered into a number of derivative instruments. The derivative instrumentsutilized comprise interest and foreign currency forward contracts. Theobjective is to reduce the volatility of our cash flows and earnings caused bychanges in underlying rates.

The amount of future interest payments on variableinterest rate debt is subject to interest rate risk.

To reduce the exposure associated with SIRONA’svariable rate debt, SIRONA has entered into interest rate swap and collaragreements that limit the variable rate for portions of the bank loans. As of June 30,2006, the interest rate swaps and collars had notional amounts of $ 349.5million and a fair value of $ 3.7 million. The variable benchmark interestrates associated with these instruments ranged from 1.595% to 5%.

The table below provides information as of June 30,2006, about receivables and derivative financial instruments by functionalcurrency and presents such information in U.S. dollars, which is SIRONA’sreporting currency. The table summarizes information on instruments andtransactions that are sensitive to foreign currency exchange rates. Theestimated fair value of receivables is considered to approximate their carryingvalue because receivables have a short maturity. For foreign currency forwardexchange agreements, the table presents the notional amounts and weightedaverage exchange rates by expected (contractual) maturity dates. These notionalamounts generally are used to calculate the contractual payments to be exchangedunder the contract.

**Expected Maturity Date**

(US $ in thousands, except exchange rate information)

 
| ** **                              | ** ** | **2006**                        | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Beyond  2010** | ** ** | **Total** | ** ** | **Fair  Value** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|------------------|------------|-----------|------------|-----------------|------------|
| *Receivables:*                          | * *   | * *                        | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * *         | * *   | * *  | * *   | * *        | * *   |
| U.S. Dollar                             |       | $                               | 17,286     |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 17,286 |   | $ | 17,286 |   |
| Japanese Yen                            |       | $                               | 2,739      |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 2,739 |   | $ | 2,739 |   |
| Australian Dollar                       |       | $                               | 2,259      |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 2,259 |   | $ | 2,259 |   |
| Danish Krone                            |       | $                               | 1,075      |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 1,075 |   | $ | 1,057 |   |
| Chinese Yuan Renminbi                   |       | $                               | 0,133      |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 133 |   | $ | 133 |   |
| UK Sterling                             |       | $                               | 0,212      |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 212 |   | $ | 212 |   |
|                                    |       |                            |       |     |       |     |       |     |       |     |       |             |       |      |       |            |       |
| *Forward Exchange Contracts:*           | * *   | * *                        | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * *         | * *   | * *  | * *   | * *        | * *   |
| U.S. dollar notional amount             |       | $                               | 30,400     |     | $          | —   |       | $        | —     |     | $          | —           |       | $         | —     |            | $          | — |   | $ | 30,400 |   | $ | 1,088 |   |
| Average contract exchange rate $/€ |       |      1.2322 |       | $        | —     |     | $          | —   |       | $        | —     |             | $          | —    |       | $               | —     |   | $ | — |   | $ | — |   |

 

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**Contractual Obligations and Commercial Commitments**

Thefollowing table summarizes SIRONA’s current and long-term portion of its debtobligation as of June 30, 2006.

 

|                 | ** ** | **Payments due by period** | ** ** |
|-----------------|------------|-------------------------------------------|------------|
| **$’000s** | ** ** | **Total**                                 | ** ** | **Less than   1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
|            | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-term debt  |       | $                                         | 539,329    |   | $ | 13,922 |   | $ | 34,037 |   | $ | 40,936 |   | $ | 450,434 |   |
|                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

During the nine month periodended June 30, 2006 the Company repaid $ 73,962 of its long-term debt.

Because the Exchange is accounted for as a reverseacquisition, Sirona Holding is deemed to be the acquiring company foraccounting purposes and to have acquired the Company as of June 20, 2006and the historical financial information of the Company is that of SIRONA. As aresult of the Exchange, the Company’s obligations and commitments alsoincluded, as of June 30, 2006, an additional $500 thousand ofoperating leases and $600 thousand of obligations under employmentarrangements of Schick.

# **ITEM 4. CONTROLSAND PROCEDURES**

Thecompany succeeded in the role of a registrant by way of the reverseacquisition. Because Sirona Holding was not a registrant before the reverse acquisition,management has not yet attested as to Internal Control Over FinancialReporting.

Ourmanagement, with the participation of our chief executive officer and chieffinancial officer, has evaluated the effectiveness of our disclosure controlsand procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended,which we refer to as the Exchange Act) as of the end of the period covered bythis report. Based on such evaluation, our chief executive officer and chieffinancial officer have concluded that, as of the end of such period, thesecontrols and procedures are effective to ensure that information required to bedisclosed by the registrant in the reports the registrant files or submitsunder the Exchange Act is recorded, processed, summarized, and reported withinthe time periods specified in the Securities and Exchange Commission’s rules andforms. These disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to bedisclosed by the registrant in the reports that it files or submits isaccumulated and communicated to the registrant’s management, including ourchief executive officer and chief financial officer, as appropriate to allowtimely decisions regarding required disclosure.

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# **PART II.OTHER INFORMATION**

# **ITEM 1. LEGALPROCEEDINGS**

Currently there are no material pending legalproceedings, other than routine litigation incidental to the Company’sbusiness, to which the Company is a party or of which any of its property isthe subject.

**ITEM 1A. RISK FACTORS**

On September 25,2005, Schick entered into an Exchange Agreement with Luxco and Sirona Holdingproviding for the issuance of 36,972,480 shares of Schick common stock to Luxcoin exchange for Luxco’s entire economic interest in Sirona Holding, whichconsisted of all of the issued and outstanding share capital of Sirona Holdingand the existing indebtedness of Sirona Holding owed to Luxco in the principalamount of €150,992 ($181,960) plus accrued interest (the “Exchange”). Theclosing of the Exchange occurred on June 20, 2006. The following is adiscussion of the material risks facing the Company following the Exchange.

***The Company must develop new products andenhancements to existing products to remain competitive.***

TheCompany is currently developing new products and enhancements to existingproducts. The Company cannot assure you that the Company will initiate,continue with and/or succeed in its efforts to develop or enhance suchproducts. It is expected that the Company will file 510(k) applicationswith the Food and Drug Administration, or FDA, and similar filings withgovernmental authorities in other countries in connection with its futureproducts and certain of its future product enhancements. There can be noassurance that the Company will file applications for or obtain regulatoryapproval from the FDA, either in the form of a pre-market clearance or a 510(k) clearance,for any of its future products, or that in order to obtain FDA clearance, theCompany will not be required to submit additional data or meet additional FDArequirements that may substantially delay the application process and result insubstantial additional expense. In addition, such pre-marketing clearance, ifobtained, may be subject to conditions on marketing or manufacturing whichcould impede its ability to manufacture and/or market its products. There canbe no assurance that any new products will be developed by us, or if developed,will be approved by, or receive marketing clearance from, applicable domesticand/or international governmental or regulatory authorities. If the Company isunable to develop, obtain regulatory approval for and market new products andenhancements to existing products, the Company’s business and results ofoperations could be harmed.

***The Company’s business may be negatively affectedif the Company does not continue to adapt to rapid technological change,evolving industry standards and new product introductions.***

Themarket for the Company’s products is characterized by rapid and significanttechnological change, evolving industry standards and new productintroductions. The Company’s products require significant planning, design,development and testing which require significant capital commitments andinvestment by us. There can be no assurance that the Company’s products orproprietary technologies will not become noncompetitive or obsolete as a resultof technological change, evolving industry standards or new productintroductions or that the Company will be able to generate any economic returnon its investment in product development. If the Company’s products ortechnologies become noncompetitive or obsolete, its business could benegatively affected.

***Competition in the markets for its products isintense and the Company may not be able to compete effectively.***

Competitionrelating to the Company’s current products is intense and includes variouscompanies, both within and outside of the United States. The Companyanticipates that competition for its future products will also be intense andinclude various companies, both within and outside of the United States andEurope. The Company’s competitors and potential competitors include largecompanies with substantially greater financial, sales and marketing, andtechnical resources, larger and more experienced research and developmentstaffs, more extensive physical facilities and substantially greater experiencein obtaining regulatory approvals and in marketing products than the Companyhas. In addition, the Company cannot assure you that its competitors are notcurrently developing, or will not attempt to develop, technologies and productsthat are more effective than those being developed by us or that wouldotherwise render its existing and new technology and products obsolete ornoncompetitive. The Company may not be able to compete successfully and maylose market share to its competitors.

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***The Company’s failure to obtain issued patents and,consequently, to protect its proprietary technology, could hurt its competitiveposition.***

TheCompany’s success will depend in part on its ability to obtain and enforceclaims in its patents directed to its products, technologies and processes,both in the United States and in other countries. Risks and uncertainties thatthe Company will face with respect to its patents and patent applicationsinclude the following:

·      the pending patent applications that the Companyhas filed, or to which the Company has exclusive rights, may not result inissued patents or may take longer than the Company expects to result in issuedpatents;

·      the allowed claims of any patents that issue maynot provide meaningful protection;

·      the Company may be unable to develop additionalproprietary technologies that are patentable;

·      the patents licensed or issued to us may not providea competitive advantage;

·      other companies may challenge patents licensedor issued to us;

·      disputes may arise regarding inventions andcorresponding ownership rights in inventions and know-how resulting from thejoint creation or use of intellectual property by us and the Company’srespective licensors; and

·      other companies may design around thetechnologies patented by us.

***If the Company cannot obtain or maintain approvalfrom government agencies, the Company will not be able to sell its products.***

TheCompany must obtain certain approvals by, and marketing clearances from,governmental authorities, including the FDA and similar health authorities inforeign countries to market and sell its products in those countries. Theseregulatory agencies regulate the marketing, manufacturing, labeling, packaging,advertising, sale and distribution of medical devices. The FDA enforcesadditional regulations regarding the safety of X-ray emitting devices. TheCompany’s products are currently regulated by such authorities and certain ofits new products will require approval by, or marketing clearance from, variousgovernmental authorities, including the FDA. Various states also impose similarregulations.

TheFDA review process typically requires extended proceedings pertaining to thesafety and efficacy of new products. A 510(k) application is required inorder to market a new or modified medical device. If specifically required bythe FDA, a pre-market approval, or PMA, may be necessary. Such proceedings,which must be completed prior to marketing a new medical device, arepotentially expensive and time consuming. They may delay or hinder a product’stimely entry into the marketplace. Moreover, there can be no assurance that thereview or approval process for these products by the FDA or any otherapplicable governmental authorities will occur in a timely fashion, if at all,or that additional regulations will not be adopted or current regulationsamended in such a manner as will adversely affect us. The FDA also oversees thecontent of advertising and marketing materials relating to medical deviceswhich have received FDA clearance. Failure to comply with the FDA’s advertisingguidelines may result in the imposition of penalties. The Company will also besubject to other federal, state and local laws, regulations and recommendationsrelating to safe working conditions, laboratory and manufacturing practices.The extent of government regulation that might result from any futurelegislation or administrative action cannot be accurately predicted. Failure tocomply with regulatory requirements could have a material adverse effect on theCompany’s business.

Similarto the FDA review process, the EU review process typically requires extendedproceedings pertaining to the safety and efficacy of new products. Suchproceedings, which must be completed prior to marketing a new medical device,are potentially expensive and time consuming and may delay or prevent a product’sentry into the marketplace.

***The Company’s revenue and operating results are likely to fluctuate.***

Thequarterly operating results of the Company have varied in the past and theCompany’s operating results are likely to continue to fluctuate in the future.These variations result from a number of factors, many of which aresubstantially outside of the control of the Company, including:

·      the timing of new product introductions by usand the Company’s competitors;

·      changes in relationships with distributors;

·      developments in government reimbursementpolicies;

·      changes in product mix;

·      the Company’s ability to supply products to meetcustomer demand;

·      fluctuations in manufacturing costs; and

·      income tax incentives.

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***The Company’s financial results may be adverselyaffected by fluctuations in foreign currency exchange rates.***

TheCompany will be exposed to currency exchange risk with respect to theU.S. dollar in relation to the euro, because a large portion of itsrevenue and expenses will be denominated in euros. This exposure may increaseif the Company expands its operations in Europe. While the Company had enteredinto hedging arrangements to protect its business against certain currencyfluctuations, these hedging arrangements do not, however, provide comprehensiveprotection. The Company will monitor changes in its exposure to exchange raterisk that result from changes in its situation. If the Company does not enterinto effective hedging arrangements in the future, its results of operationsand prospects could be materially and adversely affected.

***The Company’s substantial indebtedness could have amaterial adverse consequences for its business, cash flow, financial conditionand results of operations.***

TheCompany is a highly leveraged company, with total indebtedness to unrelatedparties of $539.3 million as of June 30, 2006. This substantial levelof indebtedness, combined with its other financial obligations and contractualcommitments, could have important consequences to its business. For example, itcould:

·      increase the risk that the Company would beunable to generate cash sufficient to pay amounts due on its indebtedness;

·      make it more vulnerable to adverse changes ingeneral economic, industry and competitive conditions and to adverse changes ingovernment regulation;

·      require us to dedicate a substantial portion ofits cash flow from operations to payments on its indebtedness, including anyindebtedness it may incur in the future, thereby reducing the availability ofits cash flows to fund working capital, capital expenditures, research anddevelopment, acquisitions and other general corporate purposes;

·      limit its flexibility in planning for, orreacting to, changes in its business and the industry in which it operates;

·      place us at a competitive disadvantage comparedto its competitors that have less debt; and

·      limit its ability to borrow additional amountsor to sell capital stock for working capital, capital expenditures, researchand development, acquisitions, debt service requirements or other generalcorporate purposes.

Anyof these factors could have a material adverse effect on us.

***Restrictive covenants contained in the agreementsgoverning Sirona Holding’s indebtedness may limit the Company’s ability torealize the benefits expected to be achieved as a result of the Exchange.***

Theagreements governing Sirona Holding’s indebtedness contain a number ofrestrictive covenants that impose significant operating and financialrestrictions on its business, including restrictions on the ability to takeactions that may be in the best interest of the business. These restrictionsinclude a prohibition on mergers and a set of conditions to any businessacquisition. These conditions include metrics relating to the price, earningsand indebtedness of the target, the level of control to be acquired and the proforma resulting ratio of consolidated total net debt of Sirona Holding toAdjusted EBITDA. Other covenants limit joint ventures, asset dispositions,lending activities and capital expenditures. The financial covenants requirethat Sirona Holding continues to have a ratio of cashflow to net debt serviceof at least 1.0 to 1.0; a ratio of Adjusted EBITDA to consolidated net financecharges of at least 1.80 to 1.00, rising gradually to 3.50 to 1.00; and a ratioof consolidated total net debt to Adjusted EBITDA of no more than 7.95 to 1.00declining gradually to 3.00 to 1.00. Failure to comply with these covenantswill result in a default under the terms of Sirona Holding’s loan agreementsand may result in acceleration of repayment of the principal due, which wouldaffect Sirona Holding’s access to its overdraft facility and its acquisitionfacility.

Theagreements governing Sirona Holding’s indebtedness do not require that Schick’sexisting operations become subject to these agreements following the Exchange,but the covenants contained within them include certain limitations thatprohibit intercompany transfers and transactions between Schick and SironaHolding that are not on an arms-length basis, and may therefore limit itsoperating flexibility. In the future, the Company may decide to amend, replaceor refinance Sirona Holding’s indebtedness, at which time all of the Company’sexisting operations may become subject to the restrictive covenants of the typedescribed above and other covenants, which could significantly limit theCompany’s financial and operating flexibility, including its ability to pursueits business strategies and to respond to changes in its business, and maylimit its ability to realize the benefits expected to be achieved as a resultof the Exchange.

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***If the Company loses its key management personnelor is unable to attract and retain qualified personnel, it could adverselyaffect its results of operations or delay or hurt its research and productdevelopment efforts.***

TheCompany’s success is dependent, in part, upon its ability to hire and retainmanagement, sales, technical, research and other personnel who are in highdemand and are often subject to competing employment opportunities. It ispossible that the loss of the services of one or a combination of the Company’ssenior executives or key managers could have an adverse effect on the Company’soperations.

***The Company may experience difficulties managingits growth, which could adversely affect its results of operations.***

It isexpected that the Company will grow in certain areas of its operations as theCompany develops and, assuming receipt of the necessary regulatory approvals,market its products. The Company will therefore need to recruit personnel,particularly sales and marketing personnel, and expand its capabilities, whichmay strain its managerial, operational, financial and other resources. Tocompete effectively and manage its growth, the Company must:

·      train, manage, motivate and retain a growingemployee base;

·      accurately forecast demand for, and revenuefrom, its product candidates; and

·      expand existing operational, financial andmanagement information systems to support its development and plannedcommercialization activities and the multiple locations of its offices.

The Company’s failure tomanage these challenges effectively could materially harm its business.

***Since the Company will operate in markets outsideof the United States and Europe, the Company is subject to additional risks.***

TheCompany anticipates that sales outside of the United States and Europe willcontinue to account for a significant percentage of its revenue. Such revenueis subject to a number of uncertainties, including but not limited to thefollowing:

·      economic and political instability;

·      import or export licensing requirements;

·      trade restrictions;

·      longer payment cycles;

·      unexpected changes in regulatory requirementsand tariffs;

·      fluctuations in currency exchange rates;

·      potentially adverse tax consequences; and

·      potentially weak protection of intellectualproperty rights.

Theserisks may impair the Company’s ability to generate revenue from the Company’ssales efforts. In addition, many countries outside of the United States andEurope have their own regulatory approval requirements for the sale ofproducts. As a result, the introduction of new products, and the Company’scontinued sale of existing products, into these markets could be preventedand/or costly and/or time-consuming, and the Company cannot assure you that theCompany will be able to obtain the required regulatory approvals on a timelybasis, if at all.

***The Company may be a party to legal actions thatare not covered by insurance.***

TheCompany may be a party to a variety of legal actions, such as employment andemployment discrimination-related suits, employee benefit claims, breach ofcontract actions, tort claims, stockholder suits, including securities fraud,governmental investigations and intellectual property related litigation. Inaddition, because of the nature of the Company’s business, the Company issubject to a variety of legal actions relating to its business operations.Recent court decisions and legislative activity in the United States mayincrease its exposure for any of these types of claims. In some cases,substantial punitive damages may be sought. Schick and Sirona had maintainedinsurance coverage for some of these potential liabilities, the Company cannotassure you that such insurance coverage will continue to be available or, ifavailable, that it can be obtained in sufficient amounts or at reasonable costor that it will be sufficient to cover any claims that may arise. Otherpotential liabilities may not be covered by insurance, insurers may disputecoverage, or the amount of insurance may not be sufficient to cover the damagesawarded. In addition, certain types of damages, such as punitive damages, maynot be covered by insurance and/or insurance coverage for all or certain formsof liability may become unavailable or prohibitively expensive in the future.

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***The Company is dependent upon a limited number ofsuppliers for critical components. If these suppliers delay or discontinue themanufacture of these components, the Company may experience delays inshipments, increased costs and cancellation of orders for its products.***

TheCompany relies on key suppliers for various critical components and willprocure certain components from outside sources which are sole suppliers. Theavailability and prices of these components may be subject to change due tointerruptions in production, changing market conditions and other events. Anydelays in delivery of or shortages in these components could interrupt anddelay manufacturing of its products and result in the cancellation of ordersfor its products. In addition, these suppliers could discontinue themanufacture or supply of these components at any time. The Company may not beable to identify and integrate alternative sources of supply in a timelyfashion or at all. Any transition to alternate suppliers may result in delaysin shipment and increased expenses and may limit its ability to deliverproducts to its customers. If the Company is unable to developreasonably-priced alternative sources in a timely manner, or if the Companyencounters delays or other difficulties in the supply of such products andother materials from third parties, its business and results of operations maybe harmed. In past years, semiconductors have been subject to significant pricefluctuations. While Schick and Sirona have, in the past, attempted to mitigatethe effects of such potential fluctuations, the Company cannot assure you thatthe Company will continue to do so or that the Company will be able tosuccessfully mitigate the effect of future price increases on its results ofoperations and financial condition.

***The Company’s exclusive right to sublicense certainpatents, patent applications and other know-how related to complementary metaloxide active pixel sensor technology is subject to certain rights to use by others.***

TheCompany is the exclusive sub-licensee for use in medical radiographyapplications of certain patents, patent applications and other know-how relatedto complementary metal oxide semiconductor active pixel sensor technology,which was developed by the California Institute of Technology and licensed toPhotobit Corp., from which the Company obtained its sub-license. Photobit wassubsequently acquired by Micron Technology, Inc., which continues tosublicense the complementary metal oxide semiconductor intellectual property tous. The Company’s exclusive rights to such technology are subject to governmentrights to use, noncommercial educational and research rights to use byCalifornia Institute of Technology and the Jet Propulsion Laboratory, and theright of a third party to obtain a nonexclusive license from the CaliforniaInstitute of Technology with respect to such technology. The Company believesthat, as of the date of this prospectus, except for such third party’s exerciseof its right to obtain a nonexclusive license to use the active pixel sensortechnology in a field other than medical radiography, none of the foregoingparties have given notice of their exercise of any of their respective rightsto such technology. The Company cannot assure you that this will continue to bethe case, and any such exercise could harm its business. Additionally, theagreement between us and Photobit Corp. required, among other things, that theCompany uses all commercially reasonable efforts to timely introduce, improveand market and distribute licensed products in various fields. The Company hasnot introduced licensed products in certain of these fields, and the Companycannot assure you that the Company will do so in the future or that the Companywill comply with the obligations under Schick’s agreement with Photobit Corp.Any such failure to introduce licensed products or comply with the obligationscould have a material adverse effect on us.

***The Company’s profitability could suffer if thirdparties infringe upon its proprietary technology.***

TheCompany’s profitability could suffer if third parties infringe upon itsintellectual property rights or misappropriate its technologies and trademarksfor their own businesses. To protect its rights to its intellectual property,the Company will rely on a combination of patent and trademark law, tradesecret protection, confidentiality agreements and contractual arrangements withits employees, strategic partners and others. The Company cannot assure youthat any of Schick or Sirona’s patents, any of the patents of which Schick orSirona were a licensee or any patents which may be issued to us or which theCompany may license in the future, will provide us with a competitive advantageor afford us protection against infringement by others, or that the patentswill not be successfully challenged or circumvented by third parties, includingits competitors. The protective steps Schick and Sirona had taken may beinadequate to deter misappropriation of the proprietary information of us. TheCompany may be unable to detect the unauthorized use of, or take appropriatesteps to enforce, its intellectual property rights. Effective patent, trademarkand trade secret protection may not be available in every country in which theCompany will offer, or intends to offer, its products. Any failure toadequately protect its intellectual property could devalue its proprietarycontent and impair its ability to compete effectively. Further, defending itsintellectual property rights could result in the expenditure of significantfinancial and managerial resources.

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***The Company’s products may infringe on theintellectual property rights of others.***

Litigationmay be necessary to enforce the Company’s patents or to defend against anyclaims of infringement of patents owned by third parties that are assertedagainst us. In addition, the Company may have to participate in one or moreinterference proceedings declared by the United States Patent and TrademarkOffice, the European Patent Office or other foreign patent governingauthorities, which could result in substantial costs to determine the priorityof inventions.

Ifthe Company becomes involved in litigation or interference proceedings, theCompany may incur substantial expense, and the proceedings may divert theattention of its technical and management personnel, even if the Companyultimately prevails. An adverse determination in proceedings of this type couldsubject us to significant liabilities, allow its competitors to marketcompetitive products without obtaining a license from us, prohibit us frommarketing its products or require us to seek licenses from third parties thatmay not be available on commercially reasonable terms, if at all. If theCompany cannot obtain such licenses, the Company may be restricted or preventedfrom commercializing its products.

Theenforcement, defense and prosecution of intellectual property rights, includingthe United States Patent and Trademark Office’s, the European Patent Office’sand other foreign patent offices’ interference proceedings, and related legaland administrative proceedings in the United States and elsewhere, involvecomplex legal and factual questions. As a result, these proceedings are costlyand time-consuming, and their outcome is uncertain. Litigation may be necessaryto:

·      assert against others or defend the companyagainst claims of infringement;

·      enforce patents owned by, or licensed to us fromanother party;

·      protect the Company’s trade secrets or know-how;or

·      determine the enforceability, scope and validityof the Company’s proprietary rights or others.

·      Healthcare reform could cause a decrease indemand for the Company’s products.

Thereare currently legislative efforts to control healthcare costs in the UnitedStates and abroad, which the Company expects will continue in the future. Atthis time, the Company is unable to determine whether and to what extent thesechanges will apply to its products and business. Similar legislative efforts inthe future could negatively impact demand for its products.

***Product liability claims exposure could besignificant.***

TheCompany will face exposure to product liability claims and recalls forunforeseen reasons from consumers, distributors or others. The Company mayexperience material product liability losses in the future and the Company mayincur significant costs to defend these claims. In addition, if any of itsproducts are or are alleged to be defective, the Company may be required toparticipate in a recall involving those products. End-users of its products maylook to us for contribution when faced with product recalls or productliability claims. Although Schick and Sirona had maintained insurance coveragerelated to product liability claims, the Company cannot assure you that productliability insurance coverage will continue to be available or, if available,that it can be obtained in sufficient amounts or at reasonable cost or that itwill be sufficient to cover any claims that may arise. The Company may notmaintain any insurance relating to potential recalls of its products. Asuccessful product liability claim brought against us in excess of availableinsurance coverage or a requirement to participate in any product recall couldreduce its profits and/or impair its financial condition, and damage itsreputation.

***Product warranty claims exposure could besignificant.***

TheCompany will generally warrant each of its products against defects inmaterials and workmanship for a period of one year from the date of shipmentplus any extended warranty period purchased by the customer. The future costsassociated with providing product warranties could be material. A successfulwarranty claim brought against us could reduce its profits and/or impair itsfinancial condition, and damage its reputation.

***Adverse publicity regarding the safety of theCompany’s technology or products could negatively impact us and cause the priceof the Company’s common stock to fall.***

Despiteany favorable safety tests that may be completed with respect to the Company’sproducts, adverse publicity regarding application of X-ray products or otherproducts being developed or marketed by others could negatively affect us. Ifother researchers’ studies raise or substantiate concerns over the safety ofits technology approach or product development efforts generally, itsreputation could be harmed, which would adversely impact its business and couldcause the price of its common stock to fall.

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***Inadequate levels of reimbursement fromgovernmental or other third-party payors for procedures using the Company’sproducts may cause its revenue to decline.***

Third-partypayors, including government health administration authorities, private healthcare insurers and other organizations regulate the reimbursement of feesrelated to certain diagnostic procedures or medical treatments. Third-partypayors are increasingly challenging the price and cost-effectiveness of medicalproducts and services. While the Company cannot predict what effect thepolicies of government entities and other third-party payors will have onfuture sales of its products, there can be no assurance that such policieswould not cause its revenue to decline.

***If the Company is unable to successfully integrateits employees into its corporate and employee culture, synergies related to theExchange could be lost or diminished.***

TheCompany will face challenges inherent in merging distinct employee andcorporate cultures into an integrated whole. The inability to successfullyintegrate employee and corporate cultures, or any significant delay inachieving a successful integration, could adversely affect its ability toretain and attract personnel, and could result in the loss or decrease ofefficiency and/or the synergies expected to be achieved as a result of the Exchange.As a result, this could have a material adverse effect on us and the marketprice of its common stock after the completion of the transactions.

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 N/A

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 N/A

**ITEM 4. SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

TheSpecial Meeting of stockholders of the Company was held at Schick’s offices,located at 30-00 47th Avenue, 5th floor, Long Island City, New York11101, at 10:00 a.m., Eastern Daylight Time, on June 14, 2006.11,256,871 shares of common stock were present in person or by proxy at themeeting, representing 67.1% of the total shares outstanding. At the SpecialMeeting, the following proposals set forth in our Proxy Statement dated May 16,2006, which was filed with the Securities and Exchange Commission pursuant toRegulation 14A under the Securities Exchange Act of 1934, were voted upon withthe results indicated below.

(1)           Of the total number ofoutstanding shares, 11,212,362 or 66.8% were voted in favor of approving theExchange Agreement and the issuance of common stock in accordance with theExchange Agreement

(2)           Of the total number ofoutstanding shares, 10,800,409 or 64.4% were voted in favour of approving anamendment to Schick’s Amended and Restated Certificate of Incorporation toeffect an increase in authorized shares to 100,000,000 shares, consisting5,000,000 shares of preferred stock and 95,000,000 shares of common stock, andto effect a name change from Schick Technologies, Inc. to Sirona DentalSystems, Inc.

(3)           Of the total number ofoutstanding shares, 8,939,857 or 53.3% were voted in favour of approving anamendment of the 1996 Stock Option Plan to provide that non-statutory stockoptions may be granted to employees of, and consultants to, any company thatSchick has agreed to acquire, such as the options granted in the context of theExchange, and to increase the number of shares of Schick’s common stockavailable for issuance under the 1996 Stock Option Plan by 1,700,000 shares,which increased the number of shares of common stock authorized for issuanceunder the 1996 Stock Option Plan to a total of 4,700,000 shares.

**ITEM 5. OTHER INFORMATION**

 N/A

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**ITEM 6. EXHIBITS**
| 3.1  |   | Certificate of Amendment, filed on June 20,  2006*                                                                                                                      |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1 |   | Registration Agreement between the Company and  Luxco, dated as of June 20, 2006*                                                                                       |
| 10.2 |   | Employment Agreement between the Company and Jeffrey  T. Slovin, dated as of June 20, 2006*                                                                             |
| 10.3 |   | Employment Agreement between the Company and Michael  Stone, dated as of June 20, 2006*                                                                                 |
| 10.4 |   | Transition and Severance Agreement between the  Company and Zvi Raskin, dated as of June 14, 2006*                                                                      |
| 10.5 |   | Employment Agreement between Sirona Dental Systems  GmbH (formerly Sirona Beteiligungs- und Verwaltungsgesellschaft mbH and Jost  Fischer, dated as of January 25, 2002 |
| 10.6 |   | Employment Agreement between Sirona Dental Systems  GmbH (formerly Sirona Beteiligungs- und Verwaltungsgesellschaft mbH and  Simone Blank, dated as of June 27, 2001    |
| 10.7 |   | Employment Agreement between Sirona Dental Systems  GmbH (formerly Sirona Beteiligungs- und Verwaltungsgesellschaft mbH and Theo  Haar, dated as of June 27, 2001       |
| 10.8 |   | Consolidated and Restated Amendment to  Distributorship Agreement between Sirona Dental Systems GmbH and Patterson  Companies, Inc. **                                  |
| 31.1 |   | Certification of Chief Executive Officer, pursuant  to Rule 13(a)-14(a) and Rule 15d-14(a) of the Exchange  Act.                                         |
| 31.2 |   | Certification of Chief Financial Officer, pursuant  to Rule 13(a)-14(a) and Rule 15d-14(a) of the Exchange  Act.                                         |
| 32.1 |   | Certifications of CEO Pursuant to 18 U.S.C  Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.                                   |
| 32.2 |   | Certifications of Chief Financial Officer Pursuant  to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes Oxley Act of 2002.               |

 

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*   Incorporated by reference to Form 8-Kfiled on June 20, 2006

**Certain information in this exhibit has been omitted and filed separately withthe Securities and Exchange Commission pursuant to a confidential treatmentrequest under Rule 24b-2 promulgated under the Securities ExchangeAct of 1934, as amended.

 

**SIGNATURES**

Pursuantto the requirements of Section 13 or 15 (d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 
|                           | SIRONA DENTAL SYSTEMS, INC |
|---------------------------|----------------------------|
|                      |                       |
|                      |                       |
| Date: August 9, 2006 | By:                        | /s/  JOST  FISCHER |
|                      |                       | Jost Fischer*President and Chief Executive Officer* |
|                      |                       |
|                      |                       |
| Date: August 9, 2006 | By:                        | /s/  SIMONE  BLANK |
|                      |                       | Simone Blank*Executive Vice President and Chief Financial Officer* |

 

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