UNITED STATES  SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549  FORM 10-Q  xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period endedSeptember 3, 2005  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 number1-11479  E-Z-EM, Inc. (Exact name of registrant as specified in its charter)  **Delaware**
    **11-1999504**
    (State or other jurisdiction of
      incorporation or organization)
    (I.R.S. Employer
      Identification No.)  1111 Marcus
Avenue, Lake Success, New York
    11042
    (Address of principal executive offices)
    (Zip Code)  **(516)
      333-8230**Registrants
      telephone number, including area code  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes
        |X|
        No
        |_|   Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes
        |X|
        No
        |_|   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes
        |_|
        No
        |X|   As of October 7, 2005, there were 10,843,078 shares of the issuers common stock outstanding.     E-Z-EM, Inc. and Subsidiaries



INDEX






**Part
      I:     Financial Information**
    **Page**Item
      l.  Financial StatementsConsolidated Balance Sheets - September 3, 2005 and
                May
      28, 2005
    3
      - 4Consolidated
      Statements of Earnings - Fourteen weeks ended
                September
      3, 2005 and thirteen weeks ended August 28, 2004
    5Consolidated
      Statement of Stockholders Equity and
                Comprehensive
      Income - Fourteen weeks ended
                September
      3, 2005
    6Consolidated
      Statements of Cash Flows - Fourteen weeks ended
                September
      3, 2005 and thirteen weeks ended August 28, 2004
    7
      - 8Notes
      to Consolidated Financial Statements
    9
      - 19Item
      2.  Managements Discussion and Analysis of Financial
                            Condition
      and Results of Operations
    20
      - 30Item
      3.  Quantitative and Qualitative Disclosures About
                           Market
      Risk
    31Item
      4.  Controls and Procedures
    32**Part
      II****:     Other Information**Item
      1.  Legal Proceedings
    33Item
      2.  Unregistered Sales of Equity Securities
                            and
      Use of Proceeds
    33Item
      3.  Defaults Upon Senior Securities
    33Item
      4.  Submission of Matters to a Vote of Security Holders
    33Item
      5.  Other Information
    33
      - 34Item
      6.  Exhibits
    34
      - 35



-2-


E-Z-EM, Inc. and Subsidiaries



CONSOLIDATED BALANCE SHEETS

(in thousands)










ASSETS
    
    
    September
      3,
      2005 (unaudited)
    
    May 28,
      2005 (audited)CURRENT
      ASSETSCash
      and cash equivalents
    
    
    $
    5,942
    
    $
    10,183Debt
      and equity securities, at fair value
    
    
    
    18,542
    
    
    18,419Accounts
      receivable, principallytrade,
      net
    
    
    
    21,853
    
    
    17,677Inventories,
      net
    
    
    
    26,119
    
    
    22,822Refundable
      income taxes
    
    
    
    856
    
    
    1,444Other
      current assets
    
    
    
    4,935
    
    
    4,705Total
      current assets
    
    
    
    78,247
    
    
    75,250PROPERTY,
      PLANT AND EQUIPMENT - AT COST,
          less accumulated depreciation and
          amortization
    
    
    
    13,462
    
    
    13,256INTANGIBLE
      ASSETS, less accumulated
          amortization
    
    
    
    4,672
    
    
    4,867DEBT AND
      EQUITY SECURITIES, at fair value
    
    
    
    846
    
    
    746OTHER
      ASSETS
    
    
    
    9,353
    
    
    7,936NONCURRENT
      ASSETS HELD FOR DISPOSAL
    
    
    
    3,553
    
    
    3,593$
    110,133
    
    $
    105,648



The accompanying notes are an integral part of these statements.



-3-


E-Z-EM, Inc. and Subsidiaries




CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)










LIABILITIES
      AND STOCKHOLDERS EQUITY
    
    
    September
      3,
      2005
    
    May 28,
      2005(unaudited)
    
    (audited)CURRENT
      LIABILITIESNotes
      payable
    
    
    $
    294
    
    $
    347Current
      maturities of long-term debt
    
    
    
    91
    
    
    99Accounts
      payable
    
    
    
    6,093
    
    
    5,069Accrued
      liabilities
    
    
    
    7,766
    
    
    9,916Accrued
      income taxes
    
    
    
    304
    
    
    207Total
      current liabilities
    
    
    
    14,548
    
    
    15,638LONG-TERM
      DEBT, less current maturities
    
    
    
    61
    
    
    85OTHER NONCURRENT
      LIABILITIES
    
    
    
    4,934
    
    
    4,205Total
      liabilities
    
    
    
    19,543
    
    
    19,928COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS
      EQUITY
          Preferred stock, par value $.10 per
             share - authorized, 1,000,000
      shares;
             issued, noneCommon
      stock, par value $.10 per share -
             authorized, 16,000,000 shares;
      issued
             and outstanding 10,842,622 shares
      at
             September 3, 2005 and 10,827,772
      shares
             at May 28, 2005 (excluding 89,205
      shares
             held in treasury at September
      3, 2005
             and May 28, 2005)
    
    
    
    1,084
    
    
    1,083Additional
      paid-in capital
    
    
    
    28,974
    
    
    28,478Retained
      earnings
    
    
    
    57,050
    
    
    54,497Accumulated
      other comprehensive income
    
    
    
    3,482
    
    
    1,662Total
      stockholders equity
    
    
    
    90,590
    
    
    85,720$
    110,133
    
    $
    105,648



The accompanying notes are an integral part of these statements.



-4-


E-Z-EM, Inc. and Subsidiaries




CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

(in thousands, except per share data)











Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004Net
      sales
    
    
    $
    34,784
    
    $
    24,012Cost of goods
      sold
    
    
    
    18,911
    
    
    13,996Gross
      profit
    
    
    
    15,873
    
    
    10,016Operating
      expensesSelling
      and administrative
    
    
    
    10,400
    
    
    8,481Plant
      closing and operational
          restructuring costs
    
    
    
    158
    
    
    601Research
      and development
    
    
    
    1,341
    
    
    1,029Total
      operating expenses
    
    
    
    11,899
    
    
    10,111Operating
      profit (loss)
    
    
    
    3,974
    
    
    (95
    )Other income
      (expense)Interest
      income
    
    
    
    160
    
    
    67Interest
      expense
    
    
    
    (120
    )
    
    (84
    )Other,
      net
    
    
    
    (96
    )
    
    702Earnings
      from continuing operations
              before income taxes
    
    
    
    3,918
    
    
    590Income
      tax provision (benefit)
    
    
    
    1,365
    
    
    (41
    )Earnings
      from continuing operations
    
    
    
    2,553
    
    
    631Earnings
      from discontinued operation, net
        of income tax provision
    
    
    
    
    
    
    620NET
      EARNINGS
    
    
    $
    2,553
    
    $
    1,251Basic
      earnings per common shareFrom
      continuing operations
    
    
    $
    0.24
    
    $
    0.06From
      discontinued operation,
          net of income tax provision
    
    
    
    
    
    
    0.06Net
      earnings
    
    
    $
    0.24
    
    $
    0.12Diluted earnings
      per common shareFrom
      continuing operations
    
    
    $
    0.23
    
    $
    0.06From
      discontinued operation,
          net of income tax provision
    
    
    
    
    
    
    0.05Net
      earnings
    
    
    $
    0.23
    
    $
    0.11



The accompanying notes are an integral part of these statements.



-5-


E-Z-EM, Inc. and Subsidiaries





CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME



Fourteen weeks ended September 3, 2005

(unaudited)

(in thousands, except share data)











Common
      stock
    
    Additional
      paid-incapital
    
    Retainedearnings
    
    Accumulated
      other
      comprehensiveincome
    
    Total
    
    Compre-
      hensiveincomeShares
    
    AmountBalance
      at May 28, 2005
    
    10,827,772
    
    $
    1,083
    
    $
    28,478
    
    $
    54,497
    
    $
    1,662
    
    $
    85,720Exercise
      of stock options
    
    14,600
    
    
    1
    
    
    51
    
    
    
    
    
    
    
    
    52Income tax
      benefits on 
        stock options exercised
    
    
    
    
    
    
    
    427
    
    
    
    
    
    
    
    
    427Compensation
      related to 
        stock option plans, net 
        of income tax benefit
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    15Issuance
      of stock
    
    250
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    3Net earnings
    
    
    
    
    
    
    
    
    
    
    2,553
    
    
    
    
    
    2,553
    
    $
    2,553Unrealized
      holding gain on debt 
        and equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    63
    
    
    63Foreign currency
      translation   adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,757
    
    
    1,757
    
    
    1,757Comprehensive
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,373Balance at
      September 3, 2005
    
    10,842,622
    
    $
    1,084
    
    $
    28,974
    
    $
    57,050
    
    $
    3,482
    
    $
    90,590



The accompanying notes are an integral part of this statement.




-6-


E-Z-EM, Inc. and Subsidiaries




CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)










  Fourteen
        weeks ended
        September 3,
        2005
      
      Thirteen
        weeks ended
        August 28,
        2004Cash
        flows from operating activities:Net
        earnings
      
      
      $
      2,553
      
      $
      1,251Earnings
        from discontinued operation,
            net of tax
      
      
      
      
      
      
      (620
      )Adjustments
        to reconcile net earnings
            to net cash provided by (used in)
            operating activitiesDepreciation
        and amortization
      
      
      
      919
      
      
      754Gain
        on sale of investments
      
      
      
      
      
      
      (718
      )Provision
        for doubtful accounts
      
      
      
      14
      
      
      21Tax
        benefit on exercise of stock options
      
      
      
      427
      
      
      103Deferred
        income tax provision
      
      
      
      4
      
      
      25Other
        non-cash items
      
      
      
      23Changes
        in operating assets and
                liabilitiesAccounts
        receivable
      
      
      
      (4,190
      )
      
      1,783Inventories
      
      
      
      (3,297
      )
      
      (1,251
      )Other
        current assets
      
      
      
      358
      
      
      295Other
        assets
      
      
      
      (169
      )
      
      (159
      )Accounts
        payable
      
      
      
      1,024
      
      
      270Accrued
        liabilities
      
      
      
      (2,792
      )
      
      (1,059
      )Accrued
        income taxes
      
      
      
      97
      
      
      270Other
        noncurrent liabilities
      
      
      
      78
      
      
      8Net
        cash provided by operating activities
                of discontinued operation
      
      
      
      
      
      
      290Net
        cash provided by (used in)
                      operating
        activities
      
      
      
      (4,951
      )
      
      1,263Cash
        flows from investing activities:Additions
        to property, plant and
            equipment, net
      
      
      
      (414
      )
      
      (1,081
      )Available-for-sale
        securitiesPurchases
      
      
      
      (41,495
      )
      
      (14,355
      )Proceeds
        from sale
      
      
      
      41,372
      
      
      11,123Net
        cash used in investing activities
            of discontinued operation
      
      
      
      
      
      
      (261
      )Net
        cash used in investing activities
      
      
      
      (537
      )
      
      (4,574
      )



The accompanying notes are an integral part of these statements.



-7-


E-Z-EM, Inc. and Subsidiaries



CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

(in thousands)











Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004Cash
      flows from financing activities:Repayments
      of debt
    
    
    $
    (78
    )
    $
    (93
    )Proceeds
      from repayment of debt by
          discontinued operation
    
    
    
    
    
    
    3,000Dividends
      paid
    
    
    
    
    
    
    (3,220
    )Proceeds
      from exercise of stock options
    
    
    
    52
    
    
    122Proceeds
      from issuance of stock in connection
          with the stock purchase plan
    
    
    
    3
    
    
    2Net
      cash used in financing activities
          of discontinued operation
    
    
    
    
    
    
    (29
    )Net
      cash used in financing activities
    
    
    
    (23
    )
    
    (218
    )Effect
      of exchange rate changes on
        cash and cash equivalents
    
    
    
    1,270
    
    
    574DECREASE
      IN CASH AND CASH EQUIVALENTS
    
    
    
    (4,241
    )
    
    (2,955
    )Cash
      and cash equivalentsBeginning
      of period
    
    
    
    10,183
    
    
    12,334End
      of period
    
    
    $
    5,942
    
    $
    9,379Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
    
    
    $
    125
    
    $
    55Income
      taxes
    
    
    $
    378
    
    $
    211



The accompanying notes are an integral part of these statements.





-8-


E-Z-EM, Inc. and Subsidiaries




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE A  NATURE OF BUSINESS AND BASIS OF PRESENTATION



Nature of Business



E-Z-EM, Inc. and its subsidiaries (the Company or E-Z-EM) is a leading provider of medical products used by radiologists, gastroenterologists and speech language pathologists primarily in screening for and diagnosing diseases and disorders of the gastrointestinal (GI) tract. Products are used for colorectal cancer screening, evaluation of swallowing disorders (dysphagia), and testing for other diseases and disorders of the GI system. The Company is also a third-party contract manufacturer, a business that enables the Company to leverage its capacity in quality control, process, automation and manufacturing. Prior to the spin-off of AngioDynamics, Inc. (AngioDynamics) on October 30, 2004, the Company was also a provider of innovative medical devices used in minimally invasive, image-guided procedures to treat peripheral vascular disease, or PVD.
AngioDynamics designed, developed, manufactured and marketed a broad line of therapeutic and diagnostic devices that enabled interventional physicians (interventional radiologists, vascular surgeons and others) to treat PVD and other non-coronary diseases.



Basis of Presentation



The consolidated balance sheet as of September 3, 2005, the consolidated statement of stockholders equity and comprehensive income for the period ended September 3, 2005, and the consolidated statements of earnings and cash flows for the fourteen weeks ended September 3, 2005 and thirteen weeks ended August 28, 2004, have been prepared by the Company without audit. The consolidated balance sheet as of May 28, 2005 was derived from audited consolidated financial statements. In the opinion of management, all adjustments (which include only normally recurring adjustments) necessary to present fairly the financial position, changes in stockholders equity and comprehensive income, results of operations and cash flows at September 3, 2005 (and for all periods presented) have been made.



Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 28, 2005 filed by the Company on August 11, 2005. The results of operations for the periods ended September 3, 2005 and August 28, 2004 are not necessarily indicative of the operating results for the respective full years.









-9-


E-Z-EM, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE A  NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)



The consolidated financial statements include the accounts of E-Z-EM, Inc. and all wholly owned subsidiaries, as well as the accounts of AngioDynamics, an 80.4%-owned subsidiary, through its spin-off on October 30, 2004. As a result of the spin-off, AngioDynamics is reported separately as a discontinued operation for the period ended August 28, 2004 within the consolidated financial statements (see Note B. Discontinued Operation). All significant intercompany balances and transactions have been eliminated.



NOTE B  DISCONTINUED OPERATION



On May 27, 2004, AngioDynamics, the Companys former subsidiary, sold 1,950,000 shares of its common stock at $11.00 per share through an initial public offering (IPO). Proceeds from the IPO, net of certain financing costs, totaling $19,949,000 were received by AngioDynamics on June 2, 2004. At May 29, 2004, E-Z-EM owned 9,200,000 shares, or 82.5% of the 11,150,000 shares outstanding. On June 15, 2004, the underwriters of the IPO exercised their over-allotment option and acquired 292,500 shares at $11.00 per share, less underwriting discounts and commissions, and on June 18, 2004, AngioDynamics received net proceeds of $2,992,000. At June 15, 2004, E-Z-EMs ownership interest in AngioDynamics decreased to 80.4%.



On October 30, 2004, the Company completed the spin-off of AngioDynamics by means of a tax-free distribution of the Companys remaining 80.4% ownership of AngioDynamics. In February 2004, the Company received a favorable private letter ruling from the Internal Revenue Service regarding the tax-free treatment of the distribution of E-Z-EMs remaining ownership in AngioDynamics. The Company made a pro rata distribution of its 9,200,000 shares of AngioDynamics common stock on October 30, 2004 to E-Z-EM shareholders of record as of October 11, 2004 (the Record Date). Based on the shares outstanding of each company on the Record Date, E-Z-EM shareholders received .856377 shares of AngioDynamics stock for each share of E-Z-EM stock they owned on the Record Date. For all periods presented, AngioDynamics is accounted for as a discontinued operation in the Companys
financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment and Disposal of Long-Lived Assets.  Amounts in the financial statements and related notes for all periods shown have been reclassified to reflect the discontinued operation.



In fiscal 2004, E-Z-EM entered into three agreements with AngioDynamics  a master separation and distribution agreement, a corporate agreement and a tax allocation and indemnification agreement  that relate to its relationship with AngioDynamics both before and after the separation of AngioDynamics from the Company. All of the agreements between the Company and AngioDynamics were made in the context of a parent-subsidiary relationship and were negotiated in the overall context of the spin-off.






-10-


E-Z-EM, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE B  DISCONTINUED OPERATION (continued)



Summarized results of operations for AngioDynamics, including minority interest, as reported in earnings from discontinued operation in the accompanying consolidated statement of earnings for the period ended August 28, 2004 are as follows (amounts in thousands):



Net
      salesFrom
      unaffiliated customers
    $
    12,858From
      affiliates
    
    247Total net
      sales
    $
    13,105Earnings
      before income taxes and minority interest
    $
    1,290Income tax
      provision
    
    524Earnings
      before minority interest
    
    766Minority
      interest
    
    146Earnings
      from discontinued operation
    $
    620



NOTE C - STOCK-BASED COMPENSATION



At September 3, 2005, the Company had three stock-based compensation plans. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Accordingly, no compensation expense has been recognized under these plans concerning options granted to key employees and to members of the Board of Directors, as all such options granted had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. For the fourteen weeks ended September 3, 2005, compensation expense of $23,000 was recognized under these plans for options granted to a former director serving as a consultant.







-11-


E-Z-EM, Inc. and Subsidiaries





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE C - STOCK-BASED COMPENSATION (continued)



The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted under these plans to key employees and to members of the Board of Directors:











Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004(in thousands,
      except per share data)Net
      earnings, as reported
    
    
    $
    2,553
    
    $
    1,251Deduct: Total
      stock-based employee
        compensation expense determined
        under the fair value based method
        for all awards, net of income
        tax effects
    
    
    
    (286
    )
    
    (358
    )Pro
      forma net earnings
    
    
    $
    2,267
    
    $
    893Earnings
      per common shareBasic
      - as reported
    
    
    $
    .24
    
    $
    .12Basic
      - pro forma
    
    
    
    .21
    
    
    .08Diluted
      - as reported
    
    
    $
    .23
    
    $
    .11Diluted
      - pro forma
    
    
    
    .21
    
    
    .08

During the fourteen weeks ended September 3, 2005, options for 207,500 shares were granted at $14.48 per share, options for 14,600 shares were exercised at prices ranging from $3.55 to $3.64 per share, options for 995 shares expired at $3.55 per share, and no options were forfeited under the 1983, 1984 and 2004 Stock Option Plans.






-12-


E-Z-EM, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE D - EARNINGS PER COMMON SHARE



Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period.



The following table sets forth the reconciliation of the weighted average number of common shares:








Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004(in
      thousands)Basic
    
    
    
    10,837
    
    
    10,732Effect of
      dilutive securities 
          (stock options)
    
    
    
    163
    
    
    200Diluted
    
    
    
    11,000
    
    
    10,932

Excluded from the calculation of earnings per common share, are options to purchase 614,500 and 8,000 shares of common stock for the fourteen weeks ended September 3, 2005 and the thirteen weeks ended August 28, 2004, respectively, as their inclusion would be anti-dilutive. For the fourteen weeks ended September 3, 2005, the range of exercise prices on the excluded options was $14.23 to $14.68 per share and, for the thirteen weeks ended August 28, 2004, the exercise price on the excluded options was $18.70 per share.





-13-



E-Z-EM, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE E - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS



In March 2004, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) released Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.  EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of an impaired loss. Certain disclosure requirements of EITF 03-1 were adopted in fiscal 2004 and the Company has complied with the new disclosure requirements in its consolidated financial statements. The recognition and measurement requirements of EITF 03-1 were initially effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB Staff Position (FSP) EITF 03-1-1 that delayed the effective date for certain measurement and recognition
guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing other-than-temporary guidance until a final consensus is reached. The Company does not anticipate that the issuance of a final consensus will materially impact its financial condition or results of operations.



In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 will improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 24, 2004. The adoption of this statement is not expected to have a material impact on the Companys financial
condition or results of operations.



In December 2004, the FASB issued SFAS No. 123 (R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123 (R), only certain pro forma disclosures of fair value were required. In April 2005, the Securities and Exchange Commission adopted a new rule that amended the
compliance dates of SFAS No. 123 (R) to require the implementation no later than the beginning of the first annual reporting period beginning after June 15, 2005. The adoption of this statement may have a material impact on the Companys financial statements commencing with the fiscal quarter ending September 2, 2006.





-14-


E-Z-EM, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE E - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (continued)



In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.  SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles were required recognition via a cumulative effect adjustment within net income for the period of the change. SFAS No. 154 requires retrospective application to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, SFAS No. 154 does not change the transition provisions
of any existing accounting pronouncements. The Company does not believe the adoption of SFAS No. 154 will have a material impact on its financial statements.



NOTE F - COMPREHENSIVE INCOME



The components of comprehensive income, net of related tax, are as follows:










Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004(in
      thousands)Net
      earnings
    
    
    $
    2,553
    
    $         1,251Unrealized
      holding gain on debt
        and equity securities:Arising
      during the period
    
    
    
    63
    
    375Reclassification
      adjustment for
            gains included in net earnings
    
    
    
    
    
    (718
    )Decrease
      in fair value on interest rate
        swap arising during the period
    
    
    
    
    
    (55
    )Foreign currency
      translation
        adjustments arising during the period
    
    
    
    1,757
    
    876Comprehensive
      income
    
    
    $
    4,373
    
    $         1,729





-15-


E-Z-EM, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE F - COMPREHENSIVE INCOME (continued)



The components of accumulated other comprehensive income, net of related tax, are as follows:










September
      3,
      2005
    
    May 28,
      2005(in
      thousands)Unrealized
      holding gain on debt and equity
        securities
    
    
    $
    371
    
    $
    308Cumulative
      translation adjustments
    
    
    
    3,111
    
    
    1,354Accumulated
      other comprehensive income
    
    
    $
    3,482
    
    $
    1,662


NOTE G  PLANT CLOSING AND OPERATIONAL RESTRUCTURING



In the fourth quarter of fiscal 2005, the Company substantially completed its plan to further streamline its operations, specifically by moving its powder-based barium production in Westbury, N.Y. to its manufacturing facility in Montreal, Canada. For the fourteen weeks ended September 3, 2005 and the thirteen weeks ended August 28, 2004, project costs aggregated $158,000 and $601,000, respectively. At September 3, 2005 and May 28, 2005, the liability for this restructuring, which is included in accrued liabilities, approximated $296,000 and $598,000, respectively. The Company intends to sell the property encompassing its Westbury manufacturing facility in fiscal 2006. No loss is expected on the sale of this property, which had a carrying value of $3,553,000 at September 3, 2005 and has been reported as assets held for disposal in the accompanying balance sheet.



NOTE H - INVENTORIES



Inventories consist of the following:







September
      3,
      2005
    
    May 28,
      2005(in
      thousands)Finished
      goods
    
    
    $
    10,717
    
    $
    10,305Work in process
    
    
    
    205
    
    
    573Raw
      materials
    
    
    
    15,197
    
    
    11,944$
    26,119
    
    $
    22,822



-16-


E-Z-EM, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE I  DEBT AND EQUITY SECURITIES



During the thirteen weeks ended August 28, 2004, the Company sold 100,000 shares of its investment in Cedara Software Corporation, resulting in a gain on sale of $718,000, which is included in the consolidated statement of earnings under the caption Other, net.



NOTE J  INCOME TAXES



For the thirteen weeks ended August 28, 2004, the Company reported an income tax benefit of $41,000 against earnings from continuing operations before income taxes of $590,000 due to the reversal of a valuation allowance relating to a previously impaired, non-core equity security sold during the thirteen weeks ended August 28, 2004.



NOTE K  CONTINGENCIES




Litigation Matters

The Company was named as a co-defendant in an action entitledJeffrey Madison d/b/a Maqguide.comvs.Avail Medical Products, Inc. et al., Case No. 05CC03584 filed in Superior Court for the State of California, Orange County, on February 28, 2005. The complaint alleges that in March 2003, the Company sought a contract manufacturer to manufacture and supply certain medical products and the Company, acting through its agent, Sopheon Corporation, solicited Maqguide to assist in this process. The complaint alleges that, acting on this information, Maqguide contacted Avail Medical Products, Inc., or Avail, about this opportunity and helped negotiate a final agreement between the Company and Avail. The complaint further alleges that Maqguide had an agreement with Avail that required Avail to pay a
commission to Maqguide upon the execution of the agreement with the Company. The complaint alleges 18 causes of action against all of the defendants, including breach of contract, breach of the covenant of good faith, quantum meruit, fraud and deceit, promissory estoppel, conspiracy and conversion. The complaint seeks compensatory, punitive and other monetary damages in an unspecified amount in excess of $25,000. The Company has engaged counsel to defend this matter and believes that the allegations against it are without merit and intends to vigorously defend this action.






-17-


E-Z-EM, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE K  CONTINGENCIES (continued)



AngioDynamics and E-Z-EM were named as co-defendants in an action entitledDuhon, et. al vs.Brezoria Kidney Center, Inc.et. al, case no. 27084 filed in the District Court of Brezoria County, Texas, 239th Judicial District on December 29, 2003. The complaint alleged that AngioDynamics and its co-defendants, E-Z-EM and Medical Components, Inc. or Medcomp, designed, manufactured, sold, distributed and marketed a defective catheter that was used in the treatment of, and caused the death of, a hemodialysis patient, as well as committed other negligent acts. The complaint sought compensatory and other monetary damages in unspecified amounts. Under AngioDynamics distribution agreement with Medcomp, Medcomp was required to indemnify AngioDynamics against all its costs and expenses, as
well as losses, liabilities and expenses (including reasonable attorneys fees) that relate in any way to products covered by the agreement, and Medcomp accepted the defense of the action. This matter has been settled and an order for dismissal with prejudice was entered into the court on August 5, 2005.



In accordance with the Master Separation and Distribution Agreement between AngioDynamics and E-Z-EM, AngioDynamics has agreed to indemnify E-Z-EM against any claims that arise out of the business operations of AngioDynamics prior to its spin-off (October 30, 2004) in which E-Z-EM is a named defendant solely because E-Z-EM was the sole stockholder of AngioDynamics.



The Company is party to other claims, legal actions and complaints that arise in the ordinary course of business. The Company believes that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on its financial position or results of operations.



Other Matters



During 2004, the Company was notified by a competitor that it believed specific claims contained in issued United States patents owned by this competitor may be relevant to certain features of the Companys electromechanical injector systems. In August 2005, the Company entered into a licensing arrangement covering the design and form of its injector systems as of the date of such agreement. At May 28, 2005, the Company recorded an estimated liability in this matter of $350,000 that the Company believes relieved it of all claims relating to prior sales.





-18-


E-Z-EM, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



September 3, 2005 and August 28, 2004

(unaudited)



NOTE K  CONTINGENCIES (continued)



Concentration of Credit Risk



For the fourteen weeks ended September 3, 2005 and the thirteen weeks ended August 28, 2004, sales of products to SourceOne Healthcare Technologies, Inc. (SourceOne) represented 33% and 28% of total sales, respectively. Approximately 39% and 31% of accounts receivable pertained to SourceOne at September 3, 2005 and May 28, 2005, respectively. While the accounts receivable related to this distributor are significant, the Company does not believe the credit loss risk to be significant given the consistent payment history and credit worthiness of this distributor.



NOTE L - COMMON STOCK



Stock Repurchase Program



In March 2003, the Board of Directors authorized the repurchase of up to 300,000 shares of the Companys common stock at an aggregate purchase price of up to $3,000,000. During the fourteen weeks ended September 3, 2005, no shares were repurchased under this program. In aggregate, the Company has repurchased 74,234 shares of common stock for approximately $716,000 under this program.



Cash Dividends



In June 2004, the Companys Board of Directors declared a cash dividend of $.30 per outstanding share of the Companys common stock. The dividend, which aggregated $3,220,000, was distributed on July 1, 2004 to shareholders of record as of June 15, 2004. Future dividends are subject to Board of Directors review of operations and financial and other conditions then prevailing.





-19-


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

The following information should be read together with the consolidated financial statements and the notes thereto and other information included elsewhere in this Quarterly Report on Form 10-Q.



Forward-Looking Statements and Risk Factors



Our disclosure and analysis in this report, including but not limited to the information discussed in this Item 2, contain forward-looking information about our companys financial results and estimates, business prospects and products in research that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as anticipate, estimate, expect, project, intend, plan, believe, will, and other words and terms of similar meaning in connection with any discussion of future operations or
financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results. Among the risk factors that could cause actual results to differ materially are the following:





        our pricing flexibility is constrained by the formation of large Group Purchasing Organizations;



        if we fail to adequately protect our intellectual property rights, our business may suffer;



        if third parties claim that our products infringe their intellectual rights, we may be forced to expend significant financial resources and management time defending against such actions and our results of operations could suffer;



        we currently purchase significant amounts of finished products, product components and raw materials from several single-source suppliers;



        our reliance on our sole Canadian manufacturing facility to produce substantially all of our CT and X-ray fluoroscopy barium sulfate formulation products may impair our ability to respond to natural disasters or other adverse events, and also exposes us to the effects of changes in Canadian dollar  U.S. dollar exchange rate;



        the market potential for our Reactive Skin Decontamination Lotion product is uncertain and sales in this market are complex;



        if we fail to develop new products and enhance existing products, we could lose market share to our competitors and our results of operations could suffer;



        the adoption rate of virtual colonoscopy as a screening modality for colon cancer has been slower than we anticipated;



-20-



        the market dynamics and competitive environment in the healthcare industry are subject to rapid change, which may affect our operations;



        if we cannot obtain approval from governmental agencies for new or modified products, we will not be able to sell those products;



        inadequate levels of reimbursement from governmental or other third-party payors for procedures using our products may cause our revenues to decline; and



        if we incur a tax liability in connection with our spin-off of AngioDynamics, we would be required to pay a potentially significant expense, which would diminish our financial resources.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.



We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Form 10-K filing for the 2005 fiscal year listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Item 7 of that filing under the heading Risk Factors.  You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.



Overview



We are a leading provider of medical diagnostic oral contrast agents and devices used in the diagnosis of abdominal disease. Our customers include radiologists and gastroenterologists. We are focused on becoming a worldwide CT solutions company for the computed tomography (CT) market. This focus is driven by the trend away from older fluoroscopic procedures (e.g., barium enema) to CT-based applications for imaging the abdominal tract. Frost & Sullivan, a leading market research firm, has estimated that CT procedures in the U.S. will grow at 11.25% compound annual growth rate over the period 2003 through 2010.



We have pioneered solutions for the emerging area of Virtual Colonography, which may offer unique capabilities for the early detection of colorectal cancer, and have also developed new contrast agents (e.g., VoLumen) that focus on CT and CT Angiography applications in Multidetector CT technology. We also manufacture and market several lines of CT power injectors, which are used to deliver CT contrast agents. Our Empower CT injector was recently rated Number 1 in user satisfaction among vendors of CT power injectors by MD Buyline.



In addition to our products for the radiology market, we have continued
to focus our efforts in the area of healthcare decontamination. Reactive Skin



-21-


Decontamination Lotion (RSDL) is a liquid skin decontaminant that is effective
in neutralizing a broad spectrum of chemical warfare and toxic agents. On April
7, 2005, we purchased from our strategic partner, ODell Engineering, all its assets related to the RSDL technology, principally
consisting of the marketing rights to this product. We now have exclusive,
worldwide rights to the RSDL technology for the military and first-responder
markets. Prior to the acquisition, we were the exclusive manufacturer of RSDL
under an agreement between ODell Engineering and our Canadian subsidiary.
We have begun staffing key positions within our RSDL product team.



In mid-December 2004, our principal competitor, Mallinckrodt, a division of Tyco International Ltd., initiated a recall of its liquid barium products due to potential microbial contamination. As a result, we estimate that our current quarter net sales were favorably affected by $5.5 million to $6.0 million due to our ability to provide replacement products. In the fourth quarter of fiscal 2005, Mallinckrodt returned to market with one of their products. However, we have no specific knowledge of Mallinckrodts plans to re-enter the market with their remaining products, but we expect their re-entry shortly. We are unable to predict what effect Mallinckrodts return to the market will have on our business.



In the fourth quarter of fiscal 2005, we received notice of price increases from several of our single-source processed barium suppliers. While this had minimal affect on the current quarter operating results, we estimate it will increase our raw materials cost by approximately $0.8 million in fiscal 2006. We currently are evaluating various alternatives to mitigate this cost increase.



As of the end of fiscal 2005, we became subject to the accelerated filing requirements and the Section 404 internal control requirements of the Sarbanes-Oxley Act of 2002. As an accelerated filer, our quarterly and annual SEC reports are subject to more stringent filing deadlines.  Additionally, under Section 404 of the Act, we are required to maintain a system of internal control over financial reporting and to evaluate and determine the effectiveness of our internal control over financial reporting. During the current quarter, we dedicated significant amounts of time and resources to these compliance efforts. We incurred outside consulting and auditing costs of $102,000 in the current quarter, and we expect that our costs for continuing Sarbanes-Oxley compliance will be significant.



Results of Operations



Our quarters ended September 3, 2005 and August 28, 2004 represent fourteen weeks and thirteen weeks, respectively.



Consolidated Results of Operations



For the quarter ended September 3, 2005, we reported net earnings of
$2,553,000, or $.24 and $.23 per common share on a basic and diluted basis,
respectively, as compared to net earnings of $1,251,000, or $.12 and $.11 per
common share on a basic and diluted basis, respectively, for the comparable
period of last year.






-22-


The following table sets forth earnings from continuing operations and earnings from discontinued operation:










Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004(in
      thousands)Earnings
      from continuing operations
    
    
    $
    2,553
    
    $
    631Earnings
      from discontinued operation
    
    
    
    
    
    
    620Net
      earnings
    
    
    $
    2,553
    
    $
    1,251

Our operating results are expressed as a percentage of net sales in the following table:










Fourteen
      weeks ended
      September 3,
      2005
    
    Thirteen
      weeks ended
      August 28,
      2004Net
      sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods
      sold
    
    
    54.4
    
    
    
    58.3Gross
      profit
    
    
    45.6
    
    
    
    41.7Operating
      expensesSelling
      and administrative
    
    
    29.9
    
    
    
    35.3Plant
      closing and operational
          restructuring costs
    
    
    0.4
    
    
    
    2.5Research
      and development
    
    
    3.9
    
    
    
    4.3Total
      operating expenses
    
    
    34.2
    
    
    
    42.1Operating
      profit (loss)
    
    
    11.4
    
    
    
    (0.4
    )Other income
      (expense)Interest
      income
    
    
    0.5
    
    
    
    0.3Interest
      expense
    
    
    (0.4
    )
    
    
    (0.3
    )Other,
      net
    
    
    (0.3
    )
    
    
    2.9Earnings
      from continuing
              operations before income
      taxes
    
    
    11.2
    
    
    
    2.5Income
      tax provision (benefit)
    
    
    3.9
    
    
    
    (0.1
    )Earnings
      from continuing
              operations
    
    
    7.3
    
    
    
    2.6Earnings
      from discontinued operation,
        net of income tax provision
    
    
    
    
    
    
    2.6NET
      EARNINGS
    
    
    7.3
    %
    
    
    5.2
    %

Continuing Operations



Operating results for the current quarter were favorably affected by
increased sales and improved gross profit, partially offset by increased



-23-


operating expenses. Results for the current quarter included $158,000 pre-tax,
or $.01 per basic share, and the comparative quarter included $601,000 pre-tax,
or $.04 per basic share, in plant closing and operational restructuring costs related to the moving of our powder-based barium production to our manufacturing facility in Montreal, Canada.



Net sales for the quarter ended September 3, 2005 increased 45%, or $10,772,000, as compared to the quarter ended August 28, 2004, due to sales growth, of which we estimate from $5,500,000 to $6,000,000 was attributable to the liquid barium product recall by our principal competitor, Mallinckrodt, and the five additional shipping days in the current quarter. The increase in net sales attributable to the Mallinckrodt recall primarily affected CT imaging and X-ray fluoroscopy products. Price increases, which accounted for less than 1% of net sales for the current quarter, had minimal effect on sales since a significant portion of our domestic products are sold under long-term group purchasing organization contracts. On a product line basis, the net sales increase resulted from increased sales of CT imaging contrast products, particularly our CT Smoothie lines, CT injector systems and CT syringes totaling
$7,230,000, X-ray fluoroscopy products of $1,943,000 and all other products of $1,599,000.



Net sales in international markets, including direct exports from the U.S., increased 31%, or $2,378,000, for the current quarter from the prior years quarter due to increased sales of defense decontaminants of $686,000, X-ray fluoroscopy products of $532,000, CT imaging products of $479,000, contract manufacturing products of $351,000 and all other products of $330,000.



The following table sets forth net sales by product category for the quarters ended September 3, 2005 and August 28, 2004:











2005
    
    2004$
    
    %
    
    $
    
    %(dollars
      in thousands)CT
      Imaging Contrast
    
    
    $
    11,064
    
    
    31.8
    
    $
    5,470
    
    22.8CT Injector
      Systems
    
    
    
    5,487
    
    
    15.8
    
    
    3,851
    
    16.0Total
      CT Imaging
    
    
    
    16,551
    
    
    47.6
    
    
    9,321
    
    38.8X-Ray Fluoroscopy
    
    
    
    11,538
    
    
    33.2
    
    
    9,595
    
    40.0Contract
      Manufacturing
    
    
    
    1,411
    
    
    4.0
    
    
    1,060
    
    4.4Accessory
      Medical Devices
    
    
    
    1,407
    
    
    4.0
    
    
    1,308
    
    5.4Gastroenterology
    
    
    
    1,338
    
    
    3.8
    
    
    1,143
    
    4.8Virtual Colonoscopy
    
    
    
    828
    
    
    2.4
    
    
    863
    
    3.6Defense
      Decontaminants
    
    
    
    751
    
    
    2.2
    
    
    48
    
    0.2Other
    
    
    
    960
    
    
    2.8
    
    
    674
    
    2.8$
    34,784
    
    
    100.0
    
    $
    24,012
    
    100.0

Gross profit, expressed as a percentage of net sales, improved to 46% for the current quarter from 42% for the comparable quarter of the prior year due primarily to favorable changes in sales product mix, increased production throughput and sales price increases, including the effects of lower distributor rebates as a percentage of sales. Favorable changes in sales product mix can be attributed, in large part, to the increased sales resulting from the Mallinckrodt recall.



Selling and administrative (S&A) expenses were
$10,400,000 for the quarter ended September 3, 2005 compared to $8,481,000 for
the quarter ended August 28, 2004. This increase of $1,919,000, or 23%, was due,
in large part, to increased compensation costs, including fringe benefits, of
$865,000,





-24-


additional infrastructure to support
our defense decontaminants business of $448,000 and outside consulting and auditing costs
of $102,000 for Sarbanes-Oxley Act Section 404 compliance efforts.



Research and development (R&D)
expenditures increased 30% for the current quarter to $1,341,000, or 4% of net sales,
from $1,029,000, or 4% of net sales, for the comparable quarter of the prior year due to
increased spending for a CT development project. Of the R&D expenditures for the
current quarter, approximately 57% relate to X-ray fluoroscopy and CT imaging projects,
32% to general regulatory costs, 9% to gastroenterology projects and 2% to other
projects. R&D expenditures are expected to continue at approximately current levels.



Other income and expenses totaled $56,000 of expense for the current quarter compared to $685,000 of income for the comparable period of last year. The comparable period of last year included a $718,000 gain on the sale of a non-core equity security.



For the quarter ended September 3, 2005, our effective tax rate of 35% differed from the Federal statutory tax rate of 34% due primarily to non-deductible expenses, partially offset by tax-exempt income. For the quarter ended August 28, 2004, we reported an income tax benefit of $41,000 against earnings from continuing operations before income taxes of $590,000 due primarily to the reversal of a valuation allowance relating to a previously impaired, non-core equity security sold in the quarter ended August 28, 2004, partially offset by non-deductible expenses.



Discontinued Operation



We have consolidated the financial statements of AngioDynamics and reported its results as a discontinued operation in an amount equal to our percentage of equity ownership through October 30, 2004, the date on which our spin-off of AngioDynamics was completed. Since the spin-off occurred in the second quarter of our prior year, the results for the discontinued operation were excluded from the accompanying consolidated statement of earnings for the current quarter.



Summarized results of operations for AngioDynamics, including minority interest, as reported in earnings from discontinued operation in the accompanying consolidated statement of earnings for the quarter ended August 28, 2004 are as follows (amounts in thousands):



Net
      salesFrom
      unaffiliated customers
    
    
    $
    12,858From
      affiliates
    
    
    
    247Total net
      sales
    
    
    $
    13,105Earnings
      before income taxes and minority interest
    
    
    $
    1,290Income tax
      provision
    
    
    
    524Earnings
      before minority interest
    
    
    
    766Minority
      interest
    
    
    
    146Earnings
      from discontinued operation
    
    
    $
    620



-25-


Liquidity and Capital Resources



For the quarter ended September 3, 2005, operations and capital expenditures were funded by working capital and cash reserves. Our policy has generally been to fund operations and capital requirements without incurring significant debt. At September 3, 2005, debt (notes payable, current maturities of long-term debt and long-term debt) was $446,000, as compared to $531,000 at May 28, 2005. We have available $1,684,000 under a bank line of credit, of which no amounts were outstanding at September 3, 2005.



Our contractual obligations and their effect on liquidity and cash flows as of September 3, 2005 are set forth in the table below. We have no variable interest entities or other off-balance sheet obligations.





Payments
      Due By Period as of September 3, 2005Total
    
    Less than
      1 year
    
    1-3
      years
    
    3-5
      years
    
    More than
      5 years(in
      thousands)Contractual
      Obligations:Long-term
      debt
    
    
    $
    152
    
    $
    91
    
    $
    61Notes
      payable
    
    
    
    294
    
    
    294Operating
      leases (1)
    
    
    
    8,379
    
    
    1,770
    
    
    3,381
    
    $
    3,136
    
    $
    92Purchase
      obligations (1)
    
    
    
    2,201
    
    
    2,201Employment
      contract (1)
    
    
    
    680
    
    
    680Consulting
      contracts (1)
    
    
    
    56
    
    
    42
    
    
    14Other
      long-term liabilities
            reflected on the
            consolidated balance sheetDeferred
      compensation (2)
    
    
    
    2,701
    
    
    18
    
    
    42
    
    
    54
    
    
    2,587Asset
      acquisition
    
    
    
    2,000
    
    
    1,300
    
    
    700License
      arrangement
    
    
    
    1,300
    
    
    650
    
    
    650Accrued
      retirement
                  benefits
    
    
    
    179
    
    
    43
    
    
    
    
    
    68
    
    
    68Total
    
    
    $
    17,942
    
    $
    7,089
    
    $
    4,848
    
    $
    3,258
    
    $
    2,747
(1)
        The non-cancelable operating leases, purchase obligations, and employment and consulting contracts are not reflected on the consolidated balance sheet under accounting principles generally accepted in the United States of America. The purchase obligations consist primarily of finished good product and component parts.


(2)
        Deferred compensation costs covering active employees are assumed payable after five years, although certain circumstances, such as termination, would require earlier payment.

At September 3, 2005, approximately $24,484,000, or 22%, of our assets consisted of cash and cash equivalents and short-term debt and equity securities. The current ratio was 5.38 to 1, with net working capital of $63,699,000, at September 3, 2005, compared to the current ratio of 4.81 to 1, with net working capital of $59,612,000, at May 28, 2005. The increase in working capital is due, in large part, to increased inventory of $3,297,000, to support our increased business, and increased accounts receivable of $4,176,000, resulting from high sales volumes during the month of August. We believe that our cash reserves, cash provided from continuing operations and existing bank line of credit will provide sufficient liquidity to meet our current obligations for the next 12 months.



In March 2003, the Board of Directors authorized the repurchase of up to
300,000 shares of our common stock at an aggregate purchase price of up to



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$3,000,000. During the quarter ended September 3, 2005, no shares were repurchased under this program. In aggregate, we have repurchased 74,234 shares of common stock for approximately $716,000 under this program.



In June 2004, our Board of Directors declared a cash dividend of $.30 per outstanding share of our common stock. The dividend, which aggregated $3,220,000, was distributed on July 1, 2004 to shareholders of record as of June 15, 2004. Future dividends are subject to our Board of Directors review of operations and financial and other conditions then prevailing.



Critical Accounting Policies



Our significant accounting policies are summarized in Note A to the Consolidated Financial Statements included in our Annual Report on Form 10-K for our fiscal year ended May 28, 2005. While all these significant accounting policies affect the reporting of our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require us to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates.



We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgment or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report. The accounting policies identified as critical are as follows:



Revenue Recognition



We recognize revenues in accordance with generally accepted accounting principles as outlined in Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, which requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) the price is fixed or determinable; (3) collectibility is reasonably assured; and (4) product delivery has occurred or services have been rendered. Decisions relative to criterion (3) regarding collectibility are based upon our judgments, as discussed under Accounts Receivable below, and should conditions change in the future and cause us to determine this criterion is not met, our results of operations may be affected. We recognize revenue on the date the product is shipped, which is when title passes to the customer. Shipping and credit terms are negotiated on a
customer-by-customer basis. Products are shipped primarily to distributors at an agreed upon list price. The distributor then resells the products primarily to hospitals and, depending upon contracts between us, the distributor and the hospital, the distributor may be entitled to a rebate. We deduct all rebates from sales and have a provision for rebates based on historical information for all rebates that have not yet been submitted to us by the distributors.



Changes in our rebate allowance for the quarter ended September 3, 2005 are as follows (amounts in thousands):



Beginning
      balance
    
    
    $
    1,397Provision
      for rebates
    
    
    
    6,963Rebate
      credits issued
    
    
    
    (6,250
    )Ending
      balance
    
    
    $
    2,110



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The rebate allowance is comprised of three components:





        actual rebate requests received from distributors prior to the closing of our financial statements;



        an estimate, compiled by distributor, of rebate requests not yet received based on historical submissions, adjusted for any material changes in purchasing patterns or market conditions; and



        an estimate of distributors inventory-on-hand available for future sale pursuant to a group purchasing organization (GPO) contract. We do not have visibility as to the specific inventory levels held by our distributors. However, based on discussions with our customers, who uniformly attempt to maintain a just-in-time purchasing program, and our knowledge of their ordering patterns, we estimate a one-week wholesale inventory level.  Since most of our product sales are subject to GPO contracts, most distributor inventory-on-hand will be subject to rebate. This portion of the rebate estimate is derived by first determining the total quantity of each product sold by us during the last week of the fiscal period multiplied by two factors, (a) and (b), where (a) is the percentage of each product rebated during the prior six-month period based on
historical sales and (b) is the average rebate paid on that product during this period.
All product returns must be pre-approved by us and may be subject to a 20% restocking charge. To be accepted, a returned product must be unadulterated, undamaged and must have at least 12 months remaining on its stated expiration date. We record revenue on warranties and extended warranties on a straight-line basis over the term of the related warranty contracts, which generally cover one year. Deferred revenues related to warranties and extended warranties were $516,000 and $505,000 at September 3, 2005 and May 28, 2005, respectively. Service costs are expensed as incurred.



Accounts Receivable



Accounts receivable are generally due within 30 to 90 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. We perform ongoing credit evaluations and adjust credit limits based upon payment history and the customers current credit worthiness, as determined by a review of their current credit information. We continuously monitor aging reports, collections and payments from customers, and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues we identify. While such credit losses have historically been within expectations and the provisions established, we cannot guarantee the same credit loss rates will be experienced in the future. We write off accounts receivable when they become uncollectible. At September 3, 2005 and May 28, 2005, our allowance for doubtful accounts was $882,000 and
$869,000, respectively. Concentration risk exists relative to our accounts receivable, as 39% and 31%, respectively, of our total accounts receivable balance at September 3, 2005 and May 28, 2005 is concentrated in one distributor. While the accounts receivable related to this distributor are significant, we do not believe the credit loss risk to be significant given the distributors consistent payment history and credit worthiness.







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Changes in our allowance for doubtful accounts for the quarter ended September 3, 2005 are as follows (amounts in thousands):



Beginning
      balance
    
    
    $
    869Provision
      for doubtful accounts
    
    
    
    14Write-offs
    
    
    
    (1
    )Ending
      balance
    
    
    $
    882

Income Taxes



In preparing our financial statements, income tax expense is calculated for each jurisdiction in which we operate. This involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability, based primarily on our ability to generate future taxable income. Where their recovery is not likely, we establish a valuation allowance and record a corresponding additional tax expense in our statement of earnings. If actual results differ from our estimates due to changes in assumptions, the provision for income taxes could be materially affected.



Inventories



We value inventories at the lower of cost (on the first-in, first-out method) or market. On a quarterly basis, we review inventory quantities on hand and analyze the provision for excess and obsolete inventory based primarily on product expiration dating and our estimated sales forecast, which is based on sales history and anticipated future demand. Our estimates of future product demand may not be accurate and we may understate or overstate the provision required for excess and obsolete inventory. Accordingly, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and results of operations. At September 3, 2005 and May 28, 2005, our reserve for excess and obsolete inventory was $1,960,000 and $1,902,000, respectively.



Property, Plant and Equipment



We state property, plant and equipment at cost, less accumulated depreciation, and depreciate principally using the straight-line method over their estimated useful lives. We determine this based on our estimates of the period over which the asset will generate revenue. Any change in condition that would cause us to change our estimate of the useful lives of a group or class of assets may significantly affect depreciation expense on a prospective basis.



Effects of Recently Issued Accounting Pronouncements



In March 2004, the Financial Accounting Standards Board
(FASB) Emerging Issues Task Force (EITF) released Issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. EITF 03-1 provides guidance for
determining whether impairment for certain debt and equity investments is
other-than-temporary and the measurement of an impaired loss. Certain disclosure
requirements of EITF 03-1 were adopted in fiscal 2004 and we have complied with
the new disclosure requirements in our consolidated financial statements. The
recognition and measurement requirements of EITF 03-1 were initially effective
for reporting periods beginning after June 15, 2004. In September 2004, the FASB
Staff issued FASB



-29-


Staff Position (FSP) EITF 03-1-1 that delayed the
effective date for certain measurement and recognition guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing other-than-temporary guidance until a final consensus is reached. We do not anticipate that the issuance of a final consensus will materially impact our financial condition or results of operations.



In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 will improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 24, 2004. The adoption of this statement is not expected to have a material impact on our financial condition or results of operations.



In December 2004, the FASB issued SFAS No. 123 (R), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123 (R), only certain pro forma disclosures of fair value were required. In April 2005, the Securities and Exchange Commission adopted a new rule that amended the compliance dates of
SFAS No. 123 (R) to require the implementation no later than the beginning of the first annual reporting period beginning after June 15, 2005. The adoption of this statement may have a material impact on our financial statements commencing with the fiscal quarter ending September 2, 2006.



In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.  SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles were required recognition via a cumulative effect adjustment within net income of the period of the change. SFAS No. 154 requires retrospective application to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, SFAS No. 154 does not change the transition provisions of any existing
accounting pronouncements. We do not believe the adoption of SFAS No. 154 will have a material impact on our financial statements.






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Item 3.Quantitative and Qualitative Disclosures About Market Risk


We are exposed to market risk from changes in foreign currency exchange rates and, to a much lesser extent, interest rates on investments and financing, which could impact our results of operations and financial position. We do not currently engage in any hedging or market risk management tools. There have been no material changes with respect to market risk previously disclosed in our Annual Report on Form 10-K for our 2005 fiscal year.



Foreign Currency Exchange Rate Risk



The financial reporting of our international subsidiaries is denominated in currencies other than the U.S. dollar. Since the functional currency of our international subsidiaries is the local currency, foreign currency translation adjustments are accumulated as a component of accumulated other comprehensive income in stockholders equity. Assuming a hypothetical aggregate change in the exchange rates of foreign currencies versus the U.S. dollar of 10% at September 3, 2005, our assets and liabilities would increase or decrease by $3,790,000 and $605,000, respectively, and our net sales and net earnings would increase or decrease by $2,608,000 and $344,000, respectively, on an annual basis.



We also maintain intercompany balances and loans receivable with subsidiaries with different local currencies. These amounts are at risk of foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical aggregate change in the exchange rates of foreign currencies versus the U.S. dollar of 10% at September 3, 2005, our pre-tax earnings would be favorably or unfavorably impacted by approximately $1,002,000 on an annual basis.



Interest Rate Risk



Our excess cash is invested in highly liquid, short-term, investment grade securities with maturities of less than one year. These investments are not held for speculative or trading purposes. Changes in interest rates may affect the investment income we earn on cash, cash equivalents and debt securities and therefore affect our cash flows and results of operations. As of September 3, 2005, we were exposed to interest rate change market risk with respect to our investments in tax-free municipal bonds in the amount of $18,385,000. The bonds bear interest at a floating rate established between seven and 35 days. For the quarter ended September 3, 2005, the after-tax interest rate on the bonds approximated 2.5%. Each 100 basis point (or 1%) fluctuation in interest rates will increase or decrease interest income on the bonds by approximately $184,000 on an annual basis.



As our principal amount of fixed interest rate financing approximated $446,000 at September 3, 2005, a change in interest rates would not materially impact results of operations or financial position. At September 3, 2005, we did not maintain any variable interest rate financing.



As of September 3, 2005, we have available $1,684,000 under a working capital bank line of credit. Advances under this line of credit will bear interest at an annual rate indexed to prime. We will thus be exposed to interest rate risk with respect to this credit facility to the extent that interest rates rise when there are amounts outstanding under this facility.





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Item 4.Controls and Procedures


Evaluation of Disclosure Controls and Procedures



As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 3, 2005. This evaluation was carried out under the supervision and with participation of our Chief Executive Officer and Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Therefore, effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of September 3, 2005, to provide reasonable assurance that information required to be disclosed in
the reports that are filed under the Exchange Act is recorded, processed, summarized and reported in a timely manner and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



Changes in Internal Control over Financial Reporting



There was no change in our internal control over financial reporting during the first quarter ended September 3, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.







-32-


E-Z-EM, Inc. and Subsidiaries



Part II:  Other Information




Item 1.Legal Proceedings



AngioDynamics and E-Z-EM were named as co-defendants in an action entitledDuhon, et. al vs.Brezoria Kidney Center, Inc.et. al, case no. 27084 filed in the District Court of Brezoria County, Texas, 239th Judicial District on December 29, 2003. The complaint alleged that AngioDynamics and its co-defendants, E-Z-EM and Medical Components, Inc. or Medcomp, designed, manufactured, sold, distributed and marketed a defective catheter that was used in the treatment of, and caused the death of, a hemodialysis patient, as well as committed other negligent acts. The complaint sought compensatory and other monetary damages in unspecified amounts. Under AngioDynamics distribution agreement with Medcomp, Medcomp was required to indemnify AngioDynamics against all its costs and expenses, as well as losses,
liabilities and expenses (including reasonable attorneys fees) that relate in any way to products covered by the agreement, and Medcomp accepted the defense of the action. This matter has been settled and an order for dismissal with prejudice was entered into the court on August 5, 2005.



Certain other legal proceedings in which we are involved are discussed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended May 28, 2005.




Item 2.Unregistered Sales of Securities and Use of Proceeds



None.




Item 3.Defaults Upon Senior Securities



None.




Item 4.Submission Of Matters to a Vote of Security Holders



None.




Item 5.Other Information



On July 25, 2005, the compensation committee of our board of directors
approved payment under our Annual Incentive Plan (the Plan) of
bonuses for fiscal year 2005 to our executive officers and certain other
employees. The following table sets forth the fiscal 2005 bonuses for the
executive officers who were included as the Named Executive Officers in our 2005
proxy statement.





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Name
    
    
    Position
    
    
    Fiscal
      2005 BonusAnthony
      A. Lombardo
    
    
    President
      and CEO
    
    
    $
    256,190Jeffrey S.
      Peacock
    
    
    Senior Vice
      President Global
    
    
    
    99,828Scientific,
      Technical andManufacturing
      OperationsDennis J.
      Curtin
    
    
    Senior Vice
      President
    
    
    
    99,616Chief Financial
      OfficerBrad S. Schreck
    
    
    Senior Vice
      President
    
    
    
    95,733Global Marketing,
      Engineering andInternational
      SalesPeter J.
      Graham
    
    
    Senior Vice
      President
    
    
    
    76,090Chief Legal
      Officer,Global Human
      Resources and Secretary


The Plan, which was previously adopted, provides for the payment of annual cash bonuses to our executive officers and certain other employees, based on the achievement of annually established Company financial goals and/or individual performance objectives. Our financial goals for fiscal 2005 consisted ofan operating profit target, before deduction for bonuses (operating profit), and an increase in net sales as compared to the 2005 fiscal yearbudget. Individual performance objectives may be established for participants in the Plan by their supervisors, and for our President and CEO, by the compensation committee or the board of directors.



Target bonuses are set annually as a percentage of base salary. For our officers, the target bonuses for fiscal 2005 were as follows:




TargetPresident and CEO
        55% of base salarySenior Vice Presidents
        35% of base salaryVice Presidents
        30% of base salary

The amount of the bonus earned may be more or less than the target bonus, based upon a matrix that compares actual results achieved with the established goals.





Item 6.Exhibits











No.
    
    Description
    
    
    Page3.1
    
    Restated
      Certificate of Incorporation of the Registrant, as Amended
    
    
    (a)3.2
    
    Amended and
      Restated Bylaws of the Registrant
    
    
    (b)



-34-


No.
    
    
    Description
    
    
    Page10.1
    
    
    Annual
      Incentive Plan
    
    
    3731.1
    
    
    Certification
      pursuant to Rule 13a-14(a)/15d-14(a) as adoptedpursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002(Anthony
      A. Lombardo)
    
    
    4631.2
    
    
    Certification
      pursuant to Rule 13a-14(a)/15d-14(a) as adoptedpursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002(Dennis J.
      Curtin)
    
    
    4832.1
    
    
    Certification
      pursuant to Title 18, United States Code, Section1350 as adopted
      pursuant to Section 906 of the Sarbanes-OxleyAct of 2002
      (Anthony A. Lombardo)
    
    
    5032.2
    
    
    Certification
      pursuant to Title 18, United States Code, Section1350 as adopted
      pursuant to Section 906 of the Sarbanes-OxleyAct of 2002
      (Dennis J. Curtin)
    
    
    51

(a)
    Incorporated
      by reference to Exhibit 3.1 to the Registrants  Registration Statement
      on Form 8-A filed with the Commission  on April 8, 2005.(b)
    Incorporated
      by reference to Exhibit 3.2 to the Registrants Current Report on Form 8-K
      filed with the Commission on January 21, 2005.




-35-


SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





E-Z-EM, Inc.

(Registrant)






DateOctober 13, 2005
        /s/ Anthony A. LombardoAnthony A. Lombardo, President,

Chief Executive Officer, Director






DateOctober 13, 2005
        /s/ Dennis J. CurtinDennis J. Curtin, Senior Vice

President - Chief Financial Officer (Principal Financial and Chief Accounting Officer)




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