UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 2, 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 1-11479 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) 333-8230Registrant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
 o Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act (Check one). Large accelerated filer
o     Accelerated
filerx     
Non-accelerated filer o Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o     No
x As of January
5, 2007, there were 10,965,543 shares of the issuers common stock outstanding.    E-Z-EM, Inc. and Subsidiaries

INDEX

PagePart
        I:   Financial InformationItem
        l.
    Financial
        StatementsConsolidated Balance Sheets  December 2, 2006 and June 3, 2006
    
    3
         4Consolidated Statements of Earnings  Thirteen and twenty-six
        weeks ended December 2, 2006 and thirteen and twenty-seven weeks ended
        December 3, 2005
    
    5Consolidated Statement of Stockholders Equity and Comprehensive
        Income  Twenty-six weeks ended December 2, 2006
    
    6Consolidated Statements of Cash Flows  Twenty-six weeks ended
        December 2, 2006 and twenty-seven weeks ended December 3, 2005
    
    7
         8Notes to Consolidated Financial Statements
    
    9
         21Item
        2.
    Managements
        Discussion and Analysis of Financial Condition and Results of Operations
    
    22
         34Item
        3.
    Quantitative
        and Qualitative Disclosures About Market Risk
    
    34
         35Item
        4.
    Controls
        and Procedures
    
    35
         36Part II:   Other
        InformationItem
        1.
    Legal
        Proceedings
    
    37Item
        1A.
    Risk
        Factors
    
    37Item
        2.
    Unregistered
        Sales of Equity Securities and Use of Proceeds
    
    37
         38Item
        3.
    Defaults
        Upon Senior Securities
    
    38Item
        4.
    Submission
        of Matters to a Vote of Security Holders
    
    38Item
        5.
    Other
        Information
    
    38Item
        6.
    Exhibits
    
    38
         39-2-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED BALANCE
SHEETS(in thousands)

ASSETS

December 2,
  2006

June 3,
  2006(unaudited)

(audited)CURRENT ASSETSCash and cash
equivalents

$
10,058

$
6,749Debt and
equity securities, at fair value


29,095


33,446Accounts
receivable, principally trade, net


23,026


20,680Inventories,
net


27,920


27,028Refundable
income taxes


1,073


2,040Other current
assets


4,614


5,012Current assets
of discontinued operation


191


426Total current
assets


95,977


95,381PROPERTY, PLANT AND EQUIPMENT -
AT COST,
  less accumulated depreciation and amortization


14,144


12,445INTANGIBLE ASSETS, less
accumulated
  amortization


3,752


4,123DEBT AND EQUITY SECURITIES, at
fair value


1,359


1,088CASH SURRENDER VALUE OF LIFE
INSURANCE


6,490


6,335OTHER ASSETS


2,942


3,815NONCURRENT ASSETS OF
DISCONTINUED OPERATION


683


605Total
assets

$
125,347

$
123,792The
accompanying notes are an integral part of these financial statements.

-3-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS(in thousands, except share
and per share data)

LIABILITIES
  AND STOCKHOLDERS EQUITY

December 2,
  2006

June 3,
  2006(unaudited)

(audited)CURRENT
LIABILITIESCurrent
maturities of long-term debt

$
5

$
31Accounts
payable


5,955


5,702Accrued
liabilities


9,738


12,123Accrued income
taxes


356


47Current
liabilities of discontinued
  operation


260


417Total current
liabilities


16,314


18,320OTHER NONCURRENT
LIABILITIES


3,641


3,630Total
liabilities


19,955


21,950COMMITMENTS AND
CONTINGENCIESSTOCKHOLDERS
EQUITYPreferred
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 10,937,543 shares at
  December 2, 2006 and 10,862,899 shares at June 3, 2006 (excluding 89,205
  shares held in treasury at December 2, 2006 and June 3, 2006)


1,094


1,086Additional
paid-in capital


31,323


30,071Retained
earnings


67,629


64,263Accumulated
other comprehensive income


5,346


6,422Total
stockholders equity


105,392


101,842Total
liabilities and stockholders equity

$
125,347

$
123,792The
accompanying notes are an integral part of these financial statements.

-4-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED
STATEMENTS OF EARNINGS(unaudited)
(in thousands, except per share data)

Thirteen weeks ended

Twenty-six
  weeks ended
  December 2,2006

Twenty-seven
  weeks ended 
  December 3,2005December 2,2006

December 3,2005Net sales

$
34,171

$
33,786

$
67,611

$
68,180Cost of goods sold


18,882


18,665


37,731


37,377Gross
profit


15,289


15,121


29,880


30,803Operating
expensesSelling, general and administrative


11,437


11,195


22,578


21,414Plant closing
and operational restructuring costs (credits)





(23
)




135Research and
development


1,559


1,412


2,935


2,752Total
operating expenses


12,996


12,584


25,513


24,301Operating
profit


2,293


2,537


4,367


6,502Other income (expense)Interest income


311


153


667


313Interest
expense


(106
)

(119
)

(176
)

(235
)Other,
net


303


(218
)

577


(319
)Earnings from
continuing operations before income taxes


2,801


2,353


5,435


6,261Income tax provision


983


799


1,834


2,164Earnings from
continuing operations


1,818


1,554


3,601


4,097Loss from discontinued
operation, net of income tax benefit


(14
)

(29
)

(235
)

(19
)NET
EARNINGS

$
1,804

$
1,525

$
3,366

$
4,078Basic earnings (loss) per
common shareFrom
continuing operations

$
0.17

$
0.14

$
0.33

$
0.38From
discontinued operation, net of income tax benefit








(0.02
)From total
operations

$
0.17

$
0.14

$
0.31

$
0.38Diluted earnings (loss) per
common shareFrom
continuing operations

$
0.16

$
0.14

$
0.32

$
0.37From
discontinued operation, net of income tax benefit








(0.02
)From total
operations

$
0.16

$
0.14

$
0.30

$
0.37The accompanying notes are an integral part
of these financial statements.

-5-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME

Twenty-six weeks ended December 2, 2006 
(unaudited) 
(in thousands, except share data)

Accumulated
  other
  comprehensive
  incomeCommon
  stock

Additional
  paid-in
  capital






Compre-
  hensive
  incomeRetained
  earningsShares

Amount




TotalBalance at June 3,
2006


10,862,899

$
1,086

$
30,071

$
64,263

$
6,422

$
101,842Exercise of stock
options


66,894


7


753








760Income tax benefits on stock
options exercised








339








339Compensation related to stock
option plans, net of income tax benefit








27








27Issuance of stock


7,750


1


133








134Net earnings











3,366





3,366

$
3,366Unrealized holding gain on debt
and equity securities














177


177


177Foreign currency translation
adjustments














(1,253
)

(1,253
)

(1,253
)Comprehensive income



















$
2,290Balance at December 2,
2006


10,937,543

$
1,094

$
31,323

$
67,629

$
5,346

$
105,392The accompanying notes are an integral part of
this financial statement.

-6-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED
STATEMENTS OF CASH FLOWS(unaudited) 
(in thousands)

Twenty-six
  weeks ended
  December 2,
  2006

Twenty-seven
  weeks ended
  December 3,
  2005Cash flows from operating
activities:Net
earnings

$
3,366

$
4,078Loss from
discontinued operation, net of
  tax


235


19Adjustments to
reconcile net earnings to
  net cash used in operating activitiesDepreciation
and amortization


1,755


1,879Provision for
doubtful accounts


46


22Tax benefit
on exercise of stock options





539Deferred
income tax provision


648


21Stock option
compensation cost


42


44Stock
compensation cost


134


126Changes in
operating assets and liabilities,
  net of business divestedAccounts
receivable


(2,392
)

(4,385
)Inventories


(892
)

(4,700
)Other current
assets


1,470


1,304Other
assets


(23
)

(164
)Accounts
payable


253


231Accrued
liabilities


(2,385
)

(1,539
)Accrued
income taxes


309


363Other
noncurrent liabilities


38


155Net cash used
in operating activities of
  discontinued operation


(123
)

(22
)Net cash
provided by (used in) operating
  activities


2,481


(2,029
)Cash flows from investing
activities:Additions to
property, plant and equipment,
  net


(3,502
)

(963
)Available-for-sale securitiesPurchases


(226,025
)

(89,650
)Proceeds from
sale


230,376


89,414Net cash
provided by investing activities
  of discontinued operation


2


(3
)Net cash
provided by (used in) investing
  activities


851


(1,202
)The accompanying notes are an integral part
of these financial statements.

-7-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
(in thousands)

Twenty-six
  weeks ended
  December 2,
  2006

Twenty-seven
  weeks ended
  December 3,
  2005Cash flows from financing
activities:Repayments of
debt

$
(26
)
$
(33
)Proceeds from
exercise of stock options


760


71Tax benefit on
exercise of stock options


339Proceeds from
issuance of stock in
  connection with the stock purchase plan





3Net cash used
in financing activities of
  discontinued operation


(148
)

(135
)Net cash
provided by (used in) financing
  activities


925


(94
)Effect of exchange rate changes
on cash and
  cash equivalents


(948
)

1,579INCREASE
(DECREASE) IN CASH AND CASH
  EQUIVALENTS


3,309


(1,746
)Cash and cash
equivalentsBeginning of
period


6,749


10,123End of
period

$
10,058

$
8,377Supplemental disclosures of
cash flow
  information:Cash paid
during the period for:Interest

$
103

$
135Income taxes
(net of refunds of $1,161 in
  2006)

$
(398
)
$
1,056The accompanying notes are an integral part
of these financial statements.

-8-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005
(unaudited)

NOTE A - NATURE OF BUSINESS AND BASIS OF
PRESENTATION

Nature of BusinessE-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 the
  exclusive worldwide manufacturer and marketer of RSDL for first-responder organizations and military
  services. RSDL is a patented, broad-spectrum liquid chemical warfare agent
  decontaminant, that neutralizes or removes chemical agents from skin on
  contact, leaving a non-toxic residue that can be rinsed off with water. The
  Company also leverages its capacities in manufacturing, automation and
  quality control by offering contract manufacturing to third-party businesses.Basis of PresentationThe
  consolidated balance sheet as of December 2, 2006, the consolidated statement
  of stockholders equity and comprehensive income for the twenty-six weeks
  ended December 2, 2006, the consolidated statements of earnings for the
  thirteen and twenty-six weeks ended December 2, 2006 and thirteen and
  twenty-seven weeks ended December 3, 2005 and the consolidated statements of
  cash flows for the twenty-six weeks ended December 2, 2006 and twenty-seven
  weeks ended December 3, 2005, have been prepared by the Company without
  audit. The consolidated balance sheet as of June 3, 2006 was derived from
  audited consolidated financial statements. In the opinion of management, all
  adjustments (which include normal recurring adjustments) necessary to present
  fairly the financial position, changes in stockholders equity and
  comprehensive income, results of operations and cash flows at December 2,
  2006 (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.
  These consolidated financial statements should 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 June 3, 2006, filed by the Company on
  August 17, 2006. The results of operations for the periods ended December 2,
  2006, and December 3, 2005, are not necessarily indicative of the operating
  results for the respective full years.The consolidated
  financial statements include the accounts of E-Z-EM, Inc. and all wholly
  owned subsidiaries. Toho Kagaku Kenkyusho Co., Ltd., the Companys wholly
  owned Japanese subsidiary, is reported separately as a discontinued operation
  for all periods presented within the consolidated financial statements (see
  Note B). All significant intercompany balances and transactions have been
  eliminated.-9-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005
(unaudited)


NOTE B - DISCONTINUED OPERATION

In February
  2006, the Executive Committee of the Board of Directors approved a plan to
  wind down and close the operations of Toho Kagaku Kenkyusho Co., Ltd.
  (Toho), a wholly owned Japanese subsidiary. The decision to close Toho
  resulted from an inability to generate income from operations and to grow the
  business due to a limited product offering and scope of operation. Also, a
  change in manufacturing location required a re-registration of Tohos principal
  products with Japanese regulatory authorities, resulting in a projected
  interruption of supply during the first quarter of fiscal 2007. Management
  planned a market withdrawal on a staged basis so that current inventory could
  be sold, accounts receivable collected and the property sold in an organized
  fashion, while also satisfying all outstanding liabilities. As a result of
  this plan, foreign currency translation gains (losses) of $10,000 and
  ($23,000), respectively, included in accumulated other comprehensive income
  have been charged to results of operations for the thirteen and twenty-six
  weeks ended December 2, 2006 in accordance with EITF Issue No. 01-5, Application
  of FASB Statement No. 52 to an Investment Being Evaluated for Impairment That
  Will Be Disposed Of. EITF 01-5 requires that accumulated foreign
  currency translation adjustments be included as part of the carrying amount
  of a foreign investment being evaluated for impairment under a committed plan
  of disposal. For all periods presented, Toho is accounted for as a
  discontinued operation in the Companys financial statements in accordance
  with 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.For the
  thirteen and twenty-six weeks ended December 2, 2006, project costs
  (credits), primarily severance and the above-mentioned impairment, aggregated
  ($12,000) and $218,000, respectively. The Company does not expect to incur
  any additional project costs. Changes in project costs are as follows:Thirteen
  weeks ended
  December 2,
  2006

Twenty-six
  weeks ended
  December 2,
  2006(in thousands)Beginning balance

$
263

$
333Recorded


(12
)

218Paid


(17
)

(317
)Ending balance

$
234

$
234-10-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and
December 3, 2005
(unaudited)

NOTE B - DISCONTINUED OPERATION (continued)

The following table sets forth the carrying amounts of the major
  classes of assets and liabilities of Toho, which are classified as assets and
  liabilities of discontinued operation in the accompanying consolidated
  balance sheets:December 2,
  2006

June 3,
  2006(in thousands)ASSETSCash and cash
equivalents

$
221

$
73Accounts receivable,
net


(30
)

229Inventory





124Current assets of discontinued
operation

$
191

$
426Property, plant and
equipment

$
682

$
603Other assets


1


2Noncurrent assets of
discontinued operation

$
683

$
605LIABILITIESAccounts payable




$
19Accrued liabilities

$
260


392Accrued income taxes





6Current liabilities of
discontinued
  operation

$
260

$
417Summarized results of operations for Toho as reported in loss from
  discontinued operation in the accompanying consolidated statements of
  earnings are as follows:Thirteen weeks ended

Twenty-six 
  weeks ended
  December 2,
  2006

Twenty-seven
  weeks ended
  December 3,
  2005December 2,
2006

December 3,
  2005(in thousands)Net sales (credits)From
unaffiliated customers

$
(11
)
$
417

$
183

$
807Total net sales
(credits)

$
(11
)
$
417

$
183

$
807Loss before income
taxes

$
(33
)
$
(29
)
$
(374
)
$
(19
)Income tax benefit


(19
)




(139
)Loss from discontinued
operation

$
(14
)
$
(29
)
$
(235
)
$
(19
)-11-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005
(unaudited)

NOTE C - STOCK-BASED COMPENSATION

Effective
  June 4, 2006, the Company adopted the provisions of Statement of Financial
  Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which
  revises SFAS No. 123, Accounting for Stock-Based Compensation and
  supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
  SFAS No. 123(R) requires that all stock-based compensation be recognized as
  an expense in the financial statements and that such cost be measured at the
  fair value of the award.Prior to the
  adoption of SFAS No. 123(R), the Company accounted for stock-based
  compensation awards under its three stock-based compensation plans using the
  intrinsic value method of Accounting Principles Board (APB) Opinion No. 25,
  Accounting for Stock Issued to Employees and related interpretations. Accordingly,
  no compensation expense had been recognized under these plans concerning
  stock options granted to employees and to members of the Board of Directors,
  as all such stock options granted had exercise prices equal to or greater
  than the market value of the underlying common stock on the dates of grant.Additionally,
  in periods prior to June 4, 2006, the Company followed the disclosure-only
  requirements of SFAS No. 123, which allowed entities to continue to apply the
  provisions of APB No. 25 for transactions with employees and directors and
  provide pro forma net earnings and pro forma earnings per share disclosures
  for employee and director stock option grants made as if the fair value based
  method of accounting in SFAS No. 123 had been applied to these transactions.SFAS No.
  123(R) was adopted using the modified prospective method, which requires the
  Company to recognize compensation expense on a prospective basis. Therefore,
  prior period financial statements have not been restated. Under this transition
  method, the Company will apply the provisions of SFAS No. 123(R) to new
  awards and to awards modified, repurchased or cancelled on or after June 4,
  2006. The provisions of SFAS No. 123(R) will not apply to any stock options
  outstanding as of June 4, 2006, since all such options were fully vested.For the
  thirteen and twenty-six weeks ended December 2, 2006, the Company did not
  recognize any share-based compensation expense in the consolidated financial
  statements for awards concerning employees or members of the Board of
  Directors since no stock options were granted nor were there any
  modifications of outstanding stock options. For the thirteen and twenty-six
  weeks ended December 2, 2006, and for the thirteen and twenty-seven weeks
  ended December 3, 2005, pre-tax compensation expense of $21,000 ($14,000
  after tax effects), $42,000 ($27,000 after tax effects), $21,000 ($13,000
  after tax effects) and $44,000 ($28,000 after tax effects), respectively, was
  recognized for stock options granted in prior years to a former director
  serving as a consultant. This expense is included in selling, general and
  administrative expense in the accompanying consolidated statements of
  earnings.-12-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005
(unaudited)

NOTE C - STOCK-BASED COMPENSATION (continued)

Prior to the adoption of SFAS No. 123(R), the Company presented all
  tax benefits resulting from the exercise of stock options as operating cash
  flows in the consolidated statement of cash flows.  SFAS No. 123(R) requires that cash flows from the exercise of
  stock options resulting from tax benefits in excess of recognized cumulative
  compensation cost (excess tax benefits) be classified as financing cash
  flows.The following table illustrates the effect on net earnings and
  earnings per common share if the Company had applied the fair value
  recognition provisions of SFAS No. 123 to stock options granted under these
  plans to employees and to members of the Board of Directors:Thirteen
  weeks ended
  December 3,
  2005

Twenty-seven
  weeks ended
  December 3,
  2005(in thousands,
  except per share data)Net earnings, as
reported

$
1,525

$
4,078Deduct: Total stock-based
employee
  compensation expense determined under the fair value based method for all
  awards, net of income tax effects


(272
)

(558
)Pro forma net
earnings

$
1,253

$
3,520Earnings per common
shareBasic - as
reported

$
0.14

$
0.38Basic - pro
forma


0.12


0.32Diluted 
as reported

$
0.14

$
0.37Diluted 
pro forma


0.11


0.32The fair value
  of options granted is estimated on the date of grant using the Black-Scholes
  option-pricing model based on the following weighted-average assumptions for
  all plans:Twenty-seven
  weeks ended
  December 3,
  2005Expected
  life (years)

5.0Expected
  volatility

47.86
%Risk-free
  interest rate

3.64
%Dividend
  yield

None-13-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005 (unaudited)

NOTE C - STOCK-BASED COMPENSATION (continued)

The expected
  life of the options represents the estimated period of time until exercise
  and is based on historical experience of similar awards, giving consideration
  to the contractual terms, vesting schedules and expectations of future
  behavior.  The expected volatility is
  estimated using the historical volatility of the Companys stock.  The risk-free interest rate is based on
  the U.S. Treasury rates at the date of grant with maturity dates
  approximately equal to the expected life at the grant date.  The Company has not recently issued
  dividends and does not expect to in the foreseeable future.2004 Stock and Incentive Award PlanIn October
  2004, the Company adopted the 2004 Stock and Incentive Award Plan (the 2004
  Plan).  The 2004 Plan provides for
  the grant of incentive stock options to employees and for the grant of
  nonstatutory stock options, restricted stock, stock appreciation rights,
  performance units, performance shares and incentive awards to employees, directors
  and other service providers.  A total
  of 1,008,425 shares of the Companys common stock are available for issuance
  under the 2004 Plan, including 576,346 shares and 82,079 shares reallocated
  from the 1983 Stock Option Plan and 1984 Directors and Consultants Stock
  Option Plan, respectively.  A
  committee of the board administers the 2004 Plan. The committee determines
  the vesting terms and exercise price of options granted under the 2004 Plan,
  but for all incentive stock options the exercise price must at least be equal
  to the fair market value of the Companys common stock on the date of
  grant.  The term of an incentive stock
  option may not exceed ten years, and up to 800,000 shares of the Companys
  common stock may be issued upon exercise of incentive stock options.  No awards may be granted under the 2004
  Plan after October 26, 2014.  At
  December 2, 2006, there were 730,675 shares available for grants of options
  and other awards under the 2004 Plan.1983 Stock Option PlanIn 1983, the
  Company adopted the 1983 Stock Option Plan (the 1983 Plan).  The 1983 Plan provides for the grant to
  key employees of both nonqualified stock options and incentive stock
  options.  A total of 2,041,628 shares
  (giving effect to the reallocation of 576,346 shares to the 2004 Plan) of the
  Companys common stock may be issued under the 1983 Plan pursuant to the
  exercise of options.  All outstanding
  stock options have an exercise price of not less than the market value of the
  shares on the date of grant.  Outstanding
  options are exercisable over a period of time designated by the
  administrators of the 1983 Plan (but not more than 10 years from the date of
  grant) and are subject to such other terms and conditions as the
  administrators have determined.  No
  further options will be issued under the 1983 Plan.-14-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005 (unaudited)

NOTE C - STOCK-BASED COMPENSATION (continued)

1984 Stock Option PlanIn 1984, the
  Company adopted the 1984 Directors and Consultants Stock Option Plan (the
  1984 Plan).  The 1984 Plan provides
  for the grant to members of the Board of Directors and consultants of
  nonqualified stock options.  A total
  of 377,411 shares (giving effect to the reallocation of 82,079 shares to the
  2004 Plan) of the Companys common stock may be issued under the 1984 Plan
  pursuant to the exercise of options.
  All outstanding stock options have an exercise price of not less than
  the market value of the shares on the date of grant.  Outstanding options are exercisable over a
  period of time designated by the administrators of the 1984 Plan (but not
  more than 10 years from the date of grant) and are subject to such other
  terms and conditions as the administrators have determined.  No further options will be issued under
  the 1984 Plan.The
  following is a summary of the stock option activity during the twenty-six
  weeks ended December 2, 2006:Number of
  Shares
  (000)

Weighted
  Average
  Exercise
  Price

Weighted
  Average
  Remaining
  Contractual
  Life in
  Years

AggregateIntrinsicValue(000)Outstanding at beginning of
period


1,358

$
12.23

7.65Exercised


(67
)
$
11.37

6.46Forfeited


(7
)
$
12.97

7.75Outstanding at end of
period


1,284

$
12.27

7.19


$
5,179Vested or expected to vest at
end of period


1,284

$
12.27

7.19


$
5,179Exercisable at end of
period


1,284

$
12.27

7.19


$
5,179The
  weighted-average grant-date fair value of stock options granted during the
  twenty-seven weeks ended December 3, 2005 was $6.67 per share.  The aggregate intrinsic value in the table
  above is before applicable income taxes and is based on the Companys closing
  stock price as of the last business day of the respective period.  The total intrinsic value of stock options
  exercised during the thirteen and twenty-six weeks ended December 2, 2006 was
  $272,000 and $323,000, respectively, and during the thirteen and twenty-seven
  weeks ended December 3, 2005 was $18,000 and $174,000, respectively.-15-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005 (unaudited)

NOTE C - STOCK-BASED COMPENSATION (continued)The Company
  received cash from stock options exercised during the thirteen and twenty-six
  weeks ended December 2, 2006 of $710,000 and $760,000, respectively, and
  thirteen and twenty-seven weeks ended December 3, 2005 of
  $19,000 and $71,000, respectively.
  The impact of these cash receipts is included in financing activities
  in the accompanying consolidated statements of cash flows.  The Company realized tax benefits from the
  exercise of stock options during the thirteen and twenty-six weeks ended
  December 2, 2006 of $224,000 and $339,000, respectively, and thirteen and twenty-seven weeks ended December 3, 2005 of $112,000 and
  $539,000, respectively.On November
  1, 2006 and November 1, 2005, the Company issued 7,750 shares of common stock
  to members of its Board of Directors and, as a result, recognized share-based
  compensation expense of $133,000 for the thirteen and twenty-six weeks ended
  December 2, 2006 and $126,000 for the thirteen and twenty-seven weeks ended
  December 3, 2005, respectively.  These
  expenses are included in selling, general and administrative expense in the
  accompanying consolidated statements of earnings.NOTE D - EARNINGS PER COMMON SHAREBasic
  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 dilutive 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:Thirteen weeks ended

Twenty-six
  weeks ended
  December 2,
  2006

Twenty-seven
  weeks ended
  December 3,
  2005December 2,
  2006

December 3,
  2005(in thousands)Basic


10,892


10,847


10,880


10,842Effect of dilutive securities
(stock options)


195


263


193


213Diluted


11,087


11,110


11,073


11,055Excluded
  from the calculation of earnings per common share, are options to purchase
  224,750 shares of common stock for the thirteen and twenty-six weeks ended
  December 2, 2006 as their inclusion would be anti-dilutive.  The range of exercise prices on the
  excluded options was $15.64 to $17.49 per share for the thirteen and
  twenty-six weeks ended December 2, 2006.-16-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005
(unaudited)

NOTE E - EFFECTS OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS

Effective
  June 4, 2006, the Company adopted the provisions of SFAS No. 151, Inventory
  Costs, an amendment of ARB No. 43, Chapter 4. The amendments made
  by SFAS No. 151 improve financial reporting by clarifying that abnormal
  amounts of idle facility expense, freight, handling costs, and wasted
  materials (spoilage) 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 facility. The adoption of SFAS No. 151
  has had no current impact on the Companys financial condition or results of
  operations.Effective June 4, 2006,
  the Company adopted the provisions of SFAS No. 154, Accounting Changes and
  Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes,
  and SFAS 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 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. The adoption of SFAS No. 154 has had no
  current impact on the Companys financial condition or results of operations.In June 2006, the FASB
  issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
  Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48
  clarifies the accounting for uncertainties in income taxes recognized in an
  enterprises financial statements. The interpretation requires that the
  Company determine whether it is more likely than not that a tax position will
  be sustained upon examination by the appropriate taxing authority. If a tax
  position meets the more likely than not recognition criteria, FIN 48 requires
  the tax position be measured at the largest amount of benefit greater than 50
  percent likely of being realized upon ultimate settlement. This accounting
  standard is effective for fiscal years beginning after December 15, 2006. The
  Company does not believe the adoption of FIN 48 will have a material impact
  on its financial condition or results of operations.In
  September 2006, the FASB issued SFAS No. 157, Fair Value
  Measurements. This statement defines fair value, establishes a framework for
  measuring fair value in generally accepted accounting principles, and expands
  disclosures about fair value measurements. The standard applies whenever
  other standards require (or permit) assets or liabilities to be measured at
  fair value but does not expand the use of fair value in any new
  circumstances. This statement is effective for financial statements issued
  for fiscal years beginning after November 15, 2007, and interim periods
  within those fiscal years. The Company does not believe the adoption of SFAS
  No. 157 will have a material impact on its financial condition or results of
  operations.-17-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005
(unaudited)

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

In September
  2006, the Securities and Exchange Commission (SEC) released Staff
  Accounting Bulletin No. 108, Considering the Effects of Prior Year
  Misstatements When Quantifying Misstatements in Current Year Financial
  Statements (SAB No. 108). SAB No. 108 provides interpretative guidance on
  how public companies quantify financial statement misstatements. There have
  been two common approaches used to quantify such errors. Under an income
  statement approach, the roll-over method, the error is quantified as the
  amount by which the current year income statement is misstated.
  Alternatively, under a balance sheet approach, the iron curtain method, the
  error is quantified as the cumulative amount by which the current year
  balance sheet is misstated. In SAB No. 108, the SEC established an approach
  that requires quantification of financial statement misstatements based on
  the effects of the misstatements on each of the companys financial
  statements and the related financial statement disclosures. This model is
  commonly referred to as a dual approach because it requires quantification
  of errors under both the roll-over and iron curtain methods. SAB No. 108 is
  effective for annual financial statements covering the first fiscal year
  ending after November 15, 2006. The Company does not believe the
  adoption of SAB No. 108 will have a material impact on its financial
  condition or results of operations.NOTE F - COMPREHENSIVE INCOME

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

Thirteen weeks ended

Twenty-six
  weeks ended
  December 2,
  2006

Twenty-seven
  weeks ended
  December 3,
  2005December 2,
  2006

December 3,
  2005(in thousands)Net earnings

$
1,804

$
1,525

$
3,366

$
4,078Unrealized holding gain on debt
and
  equity securities arising during the period


77


195


177


258Foreign currency translation
  adjustments arising during the period


(1,213
)

496


(1,253
)

2,253Comprehensive income

$
668

$
2,216

$
2,290

$
6,589-18-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005 
(unaudited)

NOTE F - COMPREHENSIVE INCOME (continued)

The
  components of accumulated other comprehensive income, net of related tax, are
  as follows:December 2,
  2006

June 3,
  2006(in thousands)Unrealized holding gain on debt
and equity securities

$
700

$
523Cumulative translation
adjustments


4,646


5,899Accumulated
other comprehensive income

$
5,346

$
6,422NOTE G - PLANT CLOSING AND OPERATIONAL
RESTRUCTURING

In May 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 twenty-seven weeks
  ended December 3, 2005, project costs aggregated $135,000. At December 3,
  2005, the liability for this restructuring, which is included in accrued
  liabilities, approximated $132,000.Changes in
  project costs are as follows:December 3,
  2005(in thousands)Beginning
  balance

$
598Recorded


135Paid


(601
)Ending
  balance

$
132-19-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005 
(unaudited)

NOTE H - DEBT AND EQUITY SECURITIES

Debt
and equity securities at December 2, 2006 consisted of the following:

Amortized
  cost

Fair
  value

Unrealized
  holding gain(in thousands)CurrentAvailable-for-sale securities
(carried on
  the balance sheet at fair value)Municipal bonds with maturitiesDue in 1
through 10 years

$
345

$
345Due after 10
years and through 20 years


10,400


10,400Due after 20
years


18,200


18,200Other


150


150$
29,095

$
29,095NoncurrentAvailable-for-sale securities
(carried on
  the balance sheet at fair value)Equity securities

$
257

$
1,359

$
1,102$
257

$
1,359

$
1,102Debt
and equity securities at June 3, 2006 consisted of the following:

Amortized
  cost

Fair
  value

Unrealized
  holding gain(in thousands)CurrentAvailable-for-sale
  securities (carried on the balance sheet at fair value)Municipal
bonds with maturitiesDue in 1
through 10 years

$
2,000

$
2,000Due after 10
years and through 20 years


16,525


16,525Due after 20
years


14,765


14,765Other


156


156$
33,446

$
33,446NoncurrentAvailable-for-sale
  securities (carried on the balance sheet at fair value)Equity
securities

$
257

$
1,088

$
831$
257

$
1,088

$
831-20-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 2, 2006 and December 3, 2005 
(unaudited)

NOTE I - INVENTORIES

Inventories
consist of the following:

December 2,
  2006

June 3,
  2006(in thousands)Finished
  goods

$
13,023

$
12,140Work in
  process


508


604Raw
  materials


14,389


14,284$
27,920

$
27,028NOTE J - CONTINGENCIES

Litigation MattersThe Company
  is party to 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.Concentration of Credit RiskIn November
  2005, Merry X-Ray Corporation (Merry X-Ray), a significant distributor of
  the Companys products in the U.S., acquired SourceOne Healthcare
  Technologies, Inc. (SourceOne), the Companys largest distributor in the
  U.S. For the twenty-six weeks ended December 2, 2006 and the twenty-seven
  weeks ended December 3, 2005, sales of products to Merry X-Ray, including
  sales to SourceOne before its acquisition by Merry X-Ray, represented 34% and
  39% of total sales, respectively. Approximately 44% and 39% of accounts
  receivable pertained to Merry X-Ray at December 2, 2006 and June 3, 2006,
  respectively. While the accounts receivable related to this distributor are
  significant, the Company does not believe the credit risk to be
  significant given the consistent payment history of this distributor.NOTE K - COMMON STOCKStock Repurchase ProgramIn 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 thirteen and twenty-six weeks ended December 2, 2006
  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.-21-

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

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, intellectual property
matters, the outcome of contingencies, such as legal proceedings, and financial
results.

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. As a result, investors are cautioned not to place undue reliance on any
of our forward-looking statements. Investors should bear this in mind as they
consider forward-looking statements.

We do not assume any obligation to update or revise
any forward-looking statement that we make, even if new information becomes
available or other events occur in the future. We are also affected by other
factors which may be identified from time to time in our filings with the
Securities and Exchange Commission some of which are set forth in Item 1A 
Risk Factors in our Form 10-K filing for the 2006 fiscal year and in Item 1A
of Part II of this Report on Form 10-Q. You are advised 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. Although we have attempted to
provide a list of important factors that may affect our business, investors are
cautioned that other factors may prove to be important in the future and could
affect our operating results. You should understand that it is not possible to
predict or identify all such factors or to assess the impact of each factor or
combination of factors on our business. 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
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

-22-

driven by the trend away from older fluoroscopic
procedures (e.g., barium enema) to CT-based applications for imaging the entire
abdominal tract because of the enhanced benefits of Multidetector CT
technology.

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 imaging contrast
agents, VoLumen, for example, that allows enhanced images from CT and CT
Angiography applications utilizing Multidetector CT technology. We also
manufacture and market a line of CT power injectors that deliver injectable CT
contrast agents.

In addition to our products for the radiology market,
we also market a unique defense decontaminant product. RSDL is a liquid skin decontaminant that is effective
in neutralizing a broad spectrum of chemical warfare and toxic agents. In April
2005, we purchased from our strategic partner, ODell Engineering, all its
assets related to the RSDL technology. 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.

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,
our net sales have been favorably affected by our ability to provide
replacement products since the recall began. During our fourth quarter of 2006,
Mallinckrodt returned to the market with a reduced product offering. In
addition, Mallinckrodt announced its decision to partner with a third-party
organization to sell its barium products in the U.S. We believe that
Mallinckrodts return to the market has had a minimal affect on our sales and
earnings to date. At this time, we are unable to determine the long-term impact
of Mallinckrodts re-entry on our business.

In February 2006, the Executive Committee of our Board
of Directors approved a plan to wind down and close the operations of Toho
Kagaku Kenkyusho Co., Ltd. (Toho), a wholly owned Japanese subsidiary. We
decided to close Toho because we were unable to generate income from operations
to grow the business due to a limited product offering and scope of operation.
Also, a change in manufacturing location required us to re-register Tohos
principal products with the Japanese regulatory authorities, which we projected
would cause an interruption of supply during the first quarter of 2007. We
planned a staged market withdrawal to allow us to sell current inventory,
collect accounts receivable and sell the property in an organized fashion,
while also satisfying all outstanding liabilities. For all periods presented,
Toho is accounted for as a discontinued operation in the Companys financial
statements in accordance with SFAS No. 144, Accounting for Impairment and
Disposal of Long-Lived Assets.

Results
of Operations

Quarters
ended December 2, 2006 and December 3, 2005

Our quarters ended December 2, 2006 and December 3,
2005 both represent thirteen weeks.

Consolidated
Results of Operations

For the quarter ended December 2, 2006, we reported
net earnings of $1,804,000, or $0.17 and $0.16 per common share on a basic and
diluted basis,

-23-

respectively, as compared to net earnings of
$1,525,000, or $0.14 per common share on both a basic and diluted basis for the
comparable period of last year.

The following table sets forth earnings from
continuing operations and loss from discontinued operation for the quarters
ended December 2, 2006 and December 3, 2005:

2006

2005(in thousands)Earnings from continuing operations

$
1,818

$
1,554Loss from discontinued operation


(14
)

(29
)Net earnings

$
1,804

$
1,525Our results are expressed as a percentage of net sales
for the quarters ended December 2, 2006 and December 3, 2005 in the following
table:

2006

2005Net sales


100.0
%

100.0
%Cost of goods
  sold


55.3


55.2Gross
profit


44.7


44.8Operating
  expensesSelling,
general
  and administrative


33.5


33.2Plant closing
  and operational restructuring costs (credits)





(0.1
)Research and
  development


4.5


4.2Total operating
  expenses


38.0


37.3Operating
profit


6.7


7.5Other income
  (expense)Interest
income


0.9


0.5Interest
expense


(0.3
)

(0.4
)Other,
net


0.9


(0.6
)Earnings from
  continuing operations before income taxes


8.2


7.0Income tax
  provision


2.9


2.4Earnings from
  continuing operations


5.3


4.6Loss from
  discontinued operation, net of income tax benefit


(0.0
)

(0.1
)NET
EARNINGS


5.3
%

4.5
%Continuing
Operations

Operating profit for the current quarter declined by
$244,000 due to increased operating expenses, partially offset by increased
sales and gross profit.

-24-

Net sales for the quarter ended December 2, 2006
increased 1%, or $385,000, as compared to the quarter ended December 3, 2005,
due to price increases and favorable foreign currency exchange fluctuations,
partially offset by lower sales volumes. Price increases accounted for
approximately 2% of net sales for the current quarter. A significant portion of
our domestic products are sold under fixed pricing, long-term group purchasing
organization contracts. Foreign currency exchange fluctuations increased the
translated amounts of foreign subsidiaries sales to U.S. dollars for financial
reporting purposes by $398,000. On a product line basis, the net sales increase
resulted from increased sales of CT imaging products of $2,586,000 and virtual
colonoscopy products of $321,000, partially offset by decreased sales of
contract manufacturing products of $1,002,000, X-ray fluoroscopy products of
$750,000 and defense decontaminants of $714,000.

Net sales in international markets, including direct
exports from the U.S., decreased less than 1%, or $50,000, for the current
quarter from the prior years quarter due to lower sales volumes, partially
offset by price increases, which accounted for approximately 2% of net sales in
international markets for the current quarter, and favorable foreign currency exchange
fluctuations, which increased the translated amounts of foreign subsidiaries
sales to U.S. dollars for financial reporting purposes by $398,000. On a
product line basis, the net sales decline resulted from decreased sales of
defense decontaminants of $720,000 and contract manufacturing products of
$564,000, partially offset by increased sales of CT imaging products of
$773,000, virtual colonoscopy products of $357,000 and all other products of
$104,000.

The following table sets forth net sales by product
category for the quarters ended December 2, 2006 and December 3, 2005:

2006

2005$

%

$

%(dollars
  in thousands)CT Imaging Contrast

$
9,170


26.8

$
8,194


24.3CT Injector Systems


6,956


20.4


5,346


15.8Total CT
Imaging


16,126


47.2


13,540


40.1X-Ray Fluoroscopy


11,179


32.7


11,929


35.3Contract Manufacturing


1,722


5.0


2,724


8.1Accessory Medical Devices


1,226


3.6


1,337


4.0Gastroenterology


1,062


3.1


1,200


3.5Virtual Colonoscopy


1,400


4.1


1,079


3.2Defense Decontaminants


349


1.0


1,063


3.1Other


1,107


3.3


914


2.7$
34,171


100.0

$
33,786


100.0Gross profit, expressed as a percentage of net sales,
was 45% for both the current quarter and the comparable quarter of the prior
year. Increased costs for purchased finished products and increased materials
cost primarily from our barium sulfate suppliers were offset by decreased
provision for inventory reserves of $352,000 and sales price increases.
Finished product costs increased primarily due to the continued weakening of
the U.S. dollar against the Canadian dollar, which increased the cost of finished
goods we purchased from our Canadian subsidiary.

Selling, general and administrative (SG&A)
expenses were $11,437,000 for the quarter ended December 2, 2006 compared to
$11,195,000 for the quarter ended December 3, 2005. This increase of $242,000,
or 2%, was due primarily to costs incurred in expanding our North American
sales force.

-25-

Research and development (R&D) expenditures
increased 10% for the current quarter to $1,559,000, or 5% of net sales, from
$1,412,000, or 4% of net sales, for the comparable quarter of the prior year.
Increased costs of $207,000 for CT imaging and X-ray fluoroscopy projects and
$65,000 for defense decontaminant projects were partially offset by decreased
general regulatory costs of $114,000 and decreased costs of $11,000 for other
projects. Of the R&D expenditures for the current quarter, approximately
61% related to CT imaging and X-ray fluoroscopy projects, 23% to general
regulatory costs, 8% to gastroenterology projects, 4% to defense decontaminant
projects, 2% to virtual colonoscopy projects and 2% to other projects. R&D
expenditures are expected to continue at or exceed current amounts for the
remainder of this fiscal year.

Other income and expenses totaled $508,000 of income
for the current quarter compared to expense of $184,000 for the comparable
period of last year. This improvement is due primarily to favorable changes in
foreign currency exchange gains and losses of $522,000 and increased interest
income of $158,000.

For the quarter ended December 2, 2006, our effective
tax rate of 35% differed from the Federal statutory tax rate of 34% due
primarily to non-deductible expenses and state income taxes, partially offset
by tax-exempt income. For the quarter ended December 3, 2005, our effective tax
rate of 34% equaled the Federal statutory tax rate as the effects of
non-deductible expenses offset tax-exempt income.

Discontinued
Operation

We have consolidated the financial statements of Toho
and reported its results as a discontinued operation. Summarized results of
operations for Toho as reported in loss from discontinued operation in the
accompanying consolidated statements of earnings for the quarters ended
December 2, 2006 and December 3, 2005 are as follows:

2006

2005(in
  thousands)Net sales (credits)From
  unaffiliated customers

$
(11
)
$
417Total net sales (credits)

$
(11
)
$
417Loss before income taxes

$
(33
)
$
(29
)Income tax benefit


(19
)Loss from discontinued operation

$
(14
)
$
(29
)The results for the discontinued operation for the
current quarter are not comparative to the results for the prior years second
quarter since no operational activity occurred in the current quarter.

Six
months ended December 2, 2006 and December 3, 2005

Our six months ended December 2, 2006 and December 3,
2005 represent twenty-six and twenty-seven weeks, respectively.

Consolidated
Results of Operations

For the six months ended December 2, 2006, we reported
net earnings of $3,366,000, or $0.31 and $0.30 per common share on a basic and
diluted basis,

-26-

respectively, as compared to net earnings of
$4,078,000, or $0.38 and $0.37 per common share on a basic and diluted basis,
respectively, for the comparable period of last year.

The following table sets forth earnings from
continuing operations and loss from discontinued operation for the six months
ended December 2, 2006 and December 3, 2005:

2006

2005(in thousands)Earnings from continuing operations

$
3,601

$
4,097Loss from discontinued operation


(235
)

(19
)Net earnings

$
3,366

$
4,078Our results are expressed as a percentage of net sales
for the six months ended December 2, 2006 and December 3, 2005 in the following
table:

2006
    
    2005Net
        sales
    
    
    100.0
    %
    
    100.0
    %Cost
        of goods sold
    
    
    55.8
    
    
    54.8Gross
        profit
    
    
    44.2
    
    
    45.2Operating
        expensesSelling,
        general and administrative
    
    
    33.4
    
    
    31.4Plant
        closing and operational restructuring costs
    
    
    
    
    
    0.2Research
        and development
    
    
    4.3
    
    
    4.1Total
        operating expenses
    
    
    37.7
    
    
    35.7Operating
        profit
    
    
    6.5
    
    
    9.5Other
        income (expense)Interest
        income
    
    
    1.0
    
    
    0.5Interest
        expense
    
    
    (0.3
    )
    
    (0.3
    )Other,
        net
    
    
    0.8
    
    
    (0.5
    )Earnings
        from continuing operations before income taxes
    
    
    8.0
    
    
    9.2Income
        tax provision
    
    
    2.7
    
    
    3.2Earnings
        from continuing operations
    
    
    5.3
    
    
    6.0Loss
        from discontinued operation, net of income tax benefit
    
    
    (0.3
    )
    
    (0.0
    )NET
        EARNINGS
    
    
    5.0
    %
    
    6.0
    %Continuing
Operations

Operating profit for the current period declined by $2,135,000 due to
decreased sales and gross profit and increased operating expenses.

-27-

Net sales for
the six months ended December 2, 2006 decreased 1%, or $569,000, as compared to
the six months ended December 3, 2005. Net sales in the first six months of the
prior year benefited from one additional week compared with the current period,
as well as from approximately $1,600,000 in backlog sales associated with the
Mallinckrodt recall. Price increases accounted for 1% of net sales for the
current period. A significant portion of our domestic products are sold under
fixed pricing, long-term group purchasing organization contracts. On a product
line basis, the net sales decline resulted from decreased sales of X-ray
fluoroscopy products of $1,048,000, defense decontaminants of $968,000,
contract manufacturing products of $729,000 and gastroenterology products of
$341,000, partially offset by increased sales of CT imaging products of
$1,828,000 and virtual colonoscopy products of $681,000.

Net sales in
international markets, including direct exports from the U.S., increased 2%, or
$498,000, for the current period from the comparable prior year period due to favorable
foreign currency exchange fluctuations, which increased the translated amounts
of foreign subsidiaries sales to U.S. dollars for financial reporting purposes
by $851,000, and price increases, which accounted for approximately 1% of net
sales in international markets for the current period, partially offset by
lower sales volumes. On a product line basis, the net sales increase resulted
primarily from increased sales of CT imaging products of $1,435,000, virtual
colonoscopy products of $653,000 and X-ray fluoroscopy products of $527,000,
partially offset by decreased sales of contract manufacturing products of
$1,281,000 and defense decontaminants of $986,000.

The following
table sets forth net sales by product category for the six months ended
December 2, 2006 and December 3, 2005:

2006

2005$

%

$

%(dollars in thousands)CT Imaging Contrast

$
18,418


27.2

$
19,258


28.2CT Injector Systems


13,501


20.0


10,833


15.9Total CT
Imaging


31,919


47.2


30,091


44.1X-Ray Fluoroscopy


22,037


32.6


23,085


33.9Contract
Manufacturing


3,406


5.0


4,135


6.1Accessory Medical
Devices


2,679


4.0


2,744


4.0Gastroenterology


2,197


3.2


2,538


3.7Virtual Colonoscopy


2,588


3.8


1,907


2.8Defense
Decontaminants


846


1.3


1,814


2.7Other


1,939


2.9


1,866


2.7$
67,611


100.0

$
68,180


100.0Gross profit,
expressed as a percentage of net sales, decreased to 44% for the current period
from 45% for the comparable period of the prior year due to increased costs for
purchased finished products and increased materials cost primarily from our
barium sulfate suppliers, partially offset by sales price increases and
decreased provision for inventory reserves of $324,000. Finished product costs
increased primarily due to the continued weakening of the U.S. dollar against the
Canadian dollar, which increased the cost of finished goods we purchased from
our Canadian subsidiary.

SG&A
expenses were $22,578,000 for the six months ended December 2, 2006 compared to
$21,414,000 for the six months ended December 3, 2005. This increase of
$1,164,000, or 5%, was due primarily to costs of $555,000

-28-

incurred in
expanding our North American sales force and additional expenses of $313,000
incurred to support our defense decontaminants business.

R&D
expenditures remained at 4% of net sales and increased 7% for the current
period to $2,935,000 from $2,752,000 for the comparable period of the prior
year. Increased costs of $221,000 for CT imaging and X-ray fluoroscopy
projects, $119,000 for defense decontaminant projects and $43,000 for other
projects were partially offset by decreased general regulatory costs of
$200,000. Of the R&D expenditures for the current period, approximately 59%
related to CT imaging and X-ray fluoroscopy projects, 24% to general regulatory
costs, 7% to gastroenterology projects, 4% to defense decontaminant projects,
3% to virtual colonoscopy projects and 3% to other projects.

Other income
and expenses totaled $1,068,000 of income for the current period compared to
expense of $241,000 for the comparable period of last year. This improvement is
due to favorable changes in foreign currency exchange gains and losses of
$904,000, increased interest income of $354,000 and decreased interest expense
of $59,000.

For the six
months ended December 2, 2006, our effective tax rate of 34% equaled the
Federal statutory tax rate as the effects of non-deductible expenses offset
tax-exempt income. For the six months ended December 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.

Discontinued Operation

We have
consolidated the financial statements of Toho and reported its results as a
discontinued operation. Summarized results of operations for Toho as reported
in loss from discontinued operation in the accompanying consolidated statements
of earnings for the six months ended December 2, 2006 and December 3, 2005 are
as follows:

2006

2005(in thousands)Net salesFrom unaffiliated customers

$
183

$
807Total net sales

$
183

$
807Loss before income
taxes

$
(374
)
$
(19
)Income tax benefit


(139
)Loss from discontinued
operation

$
(235
)
$
(19
)The results
for the discontinued operation for the current period represent two months of
operational activity and, therefore, are not comparative to the results for the
prior years first six months.

Liquidity and Capital Resources

For the six
months ended December 2, 2006, operations and capital expenditures were funded
by working capital. Our policy has generally been to fund operations and
capital requirements without incurring significant debt. At December 2, 2006,
debt (current maturities of long-term debt) was $5,000, as compared to $31,000
at June 3, 2006. We have available $1,747,000

-29-

under a bank
line of credit, of which no amounts were outstanding at December 2, 2006.

Our
contractual obligations and their effect on liquidity and cash flows as of
December 2, 2006 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 December 2, 2006Total

Less than
  1 year

1-3
  years

3-5
  years

More than
  5 years(in thousands)Contractual
Obligations:Long-term
debt

$
5

$
5Operating
leases (1)


6,517


1,855

$
3,445

$
1,217Purchase
obligations (1)


4,704


4,037


667Employment
contract (1)


720


720Consulting
contracts (1)


3


3Other
liabilities reflected on the consolidated balance sheetDeferred
compensation (2)


2,747


87


169


207

$
2,284Asset
acquisition


700


700License
arrangements


686


686Accrued
severance benefits


123


123Total

$
16,205

$
8,216

$
4,281

$
1,424

$
2,284(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 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 December 2,
2006, approximately $39,153,000, or 31%, of our assets consisted of cash and
cash equivalents and short-term debt and equity securities. The current ratio
was 5.88 to 1, with net working capital of $79,663,000, at December 2, 2006,
compared to a current ratio of 5.21 to 1, with net working capital of
$77,061,000, at June 3, 2006. We believe that our cash reserves, cash provided
from operations and existing bank line of credit will provide sufficient
liquidity to meet our cash requirements 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 $3,000,000. During the six
months ended December 2, 2006, 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.

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 June 3, 2006. 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.

-30-

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. 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 or when the product is delivered, depending on 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
agreed upon list prices. 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 six months ended December 2, 2006 and December 3, 2005
are as follows:

2006

2005(in
  thousands)Beginning
  balance

$
1,866

$
1,397Provision
  for rebates


12,956


12,835Rebate
  credits issued


(12,564
)

(12,424
)Ending
  balance

$
2,258

$
1,808The 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 just-in-time purchasing programs, and our-31-

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 the product rebated
  during the prior six-month period based on historical sales and (b) is the
  average rebate paid on the product during that 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
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 $873,000
and $688,000 at December 2, 2006 and June 3, 2006, 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 histories and
customers current creditworthiness, 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. Concentration risk exists relative to our accounts
receivable, as 44% and 39% of our total accounts receivable balances at
December 2, 2006 and June 3, 2006, respectively, were concentrated in one
distributor. While the accounts receivable related to this distributor are
significant, we do not believe the credit risk to be significant given the
distributors consistent payment history.

Changes in our
allowance for doubtful accounts for the six months ended December 2, 2006 and
December 3, 2005 are as follows:

2006

2005(in thousands)Beginning
  balance

$
888

$
837Provision
  for doubtful accounts


46


22Write-offs


(11
)

(9
)Ending
  balance

$
923

$
850Income 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

-32-

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 December 2, 2006 and June 3, 2006, our reserves for excess and
obsolete inventory were $1,923,000 and $2,053,000, respectively.

Effects of Recently Issued Accounting Pronouncements

Effective June 4, 2006, we adopted the provisions of
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 improve
financial reporting by clarifying that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) 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 facility.  The adoption of SFAS No. 151 has had no
current impact on our financial condition or results of operations.

Effective June 4, 2006, we adopted the provisions of
SFAS No. 123(R), Share-Based Payment, which revises SFAS No. 123, Accounting
for Stock-Based Compensation and supersedes 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 SFAS No. 123(R) has had no
current impact on our financial condition or results of operations.

Effective June 4, 2006, we adopted the provisions of
SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB
Opinion No. 20, Accounting Changes, and SFAS 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 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

-33-

either the period-specific effects or the cumulative
effect of the change.  The adoption of
SFAS No. 154 has had no current impact on our financial condition or results of
operations.

In June 2006, the FASB issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109 (FIN 48).  FIN 48
clarifies the accounting for uncertainties in income taxes recognized in an
enterprises financial statements.  The
interpretation requires that we determine whether it is more likely than not
that a tax position will be sustained upon examination by the appropriate
taxing authority.  If a tax position
meets the more likely than not recognition criteria, FIN 48 requires the tax
position be measured at the largest amount of benefit greater than 50 percent
likely of being realized upon ultimate settlement.  This accounting standard is effective for fiscal years beginning
after December 15, 2006.  We do not
believe the adoption of FIN 48 will have a material impact on our financial
condition or results of operations.

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements.
This statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements.  The
standard applies whenever other standards require (or permit) assets or liabilities
to be measured at fair value but does not expand the use of fair value in any
new circumstances.  This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.  We do not believe the adoption of SFAS No.
157 will have a material impact on our financial condition or results of
operations.

In September 2006, the Securities and Exchange
Commission (SEC) released Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements When Quantifying Misstatements in Current
Year Financial Statements (SAB No. 108).
SAB No. 108 provides interpretative guidance on how public companies
quantify financial statement misstatements.
There have been two common approaches used to quantify such errors.  Under an income statement approach, the
roll-over method, the error is quantified as the amount by which the current
year income statement is misstated.
Alternatively, under a balance sheet approach, the iron curtain
method, the error is quantified as the cumulative amount by which the current
year balance sheet is misstated.  In SAB
No. 108, the SEC established an approach that requires quantification of
financial statement misstatements based on the effects of the misstatements on
each of the companys financial statements and the related financial statement
disclosures.  This model is commonly
referred to as a dual approach because it requires quantification of errors
under both the roll-over and iron curtain methods.  SAB No. 108 is effective for annual financial statements covering
the first fiscal year ending after November 15, 2006.  We do not believe the adoption of SAB No.
108 will have a material impact on our financial condition or results of
operations.

Item 3.
Quantitative and Qualitative Disclosures About Market
RiskWe are exposed to market risk from changes in foreign
currency exchange rates and, to a much lesser extent, interest rates on
investments and financing, that could impact our results of operations and
financial position.  We do not currently
engage in any hedging or market risk management tools.  There

-34-

have been no material changes with respect to market
risk previously disclosed in our Annual Report on Form 10-K for our 2006 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 of 10% in the exchange rates of
foreign currencies against the U.S. dollar at December 2, 2006, our assets and
liabilities would increase or decrease by $4,512,000 and $600,000,
respectively, and our net sales and net earnings would increase or decrease by
$2,910,000 and $218,000, 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 of 10% in the exchange rates of
foreign currencies against the U.S. dollar at December 2, 2006, our pre-tax
earnings would be favorably or unfavorably impacted by approximately $712,000
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 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 December
2, 2006, we were exposed to interest rate change market risk with respect to
our investments in tax-free municipal bonds in the principal amount of
$28,945,000.  The bonds bear interest at
a floating rate established between seven and 35 days.  For the quarter ended December 2, 2006, the
after-tax interest rate on the bonds approximated 3.6%.  Each 100 basis point (or 1%) fluctuation in
interest rates will increase or decrease interest income on the bonds by
approximately $289,000 on an annual basis.

As our principal amount of fixed interest rate
financing approximated $5,000 at December 2, 2006, a change in interest rates
would not materially impact results of operations or financial position.  At December 2, 2006, we did not maintain any
variable interest rate financing.

As of December 2, 2006, we have available $1,747,000
under a working capital bank line of credit.
Advances under this line of credit will bear interest at an annual rate
indexed to the Canadian prime rate.  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.

Item 4.
Controls and ProceduresEvaluation
of Disclosure Controls and Procedures

As required by Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the Exchange Act), we conducted an
evaluation of the effectiveness

-35-

of the design and operation of our disclosure controls
and procedures as of December 2, 2006.
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 December 2, 2006,
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 within the time periods specified in the Securities and
Exchange Commissions rules and forms, 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 fiscal quarter ended December 2, 2006 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

-36-

E-Z-EM,
Inc. and Subsidiaries

Part II:  Other
Information

Item 1.
Legal ProceedingsCertain 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 June 3, 2006.

Item 1A.
Risk
  FactorsExcept as noted below, there have been no material
changes from the risk factors previously disclosed in Part I, Item 1A of our
Annual Report on Form 10-K for the fiscal year ended June 3, 2006.

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

We believe that government regulation, private sector
programs and reimbursement policies will continue to change the worldwide
healthcare industry, potentially resulting in further business consolidations
and alliances.  Consequently, the market
dynamics and competitive environment in which we operate are subject to rapid
change, which may affect our growth plans and operating results.

In November 2006, the Centers for Medicare &
Medicaid Services (CMS) announced 2007 reimbursement rates for U.S.
healthcare providers treating Medicare and Medicaid patients and also
implemented various provisions of the Deficit Reduction Act of 2005 related to
medical imaging procedures that affect our industry.  CMS reimbursement rates now factor in a Sustainable Growth Rate
(SGR) cut, which requires a 5% reduction in physician payments as determined
by the SGR formula.  A new CMS rule,
effective January 1, 2007, caps payment rates for imaging services provided
outside of hospital outpatient departments under the physician fee schedule at
the same amount paid for such services performed in hospital outpatient
departments.  The new rule also establishes a policy of reducing by 25%
the payment for the technical component of multiple imaging procedures on
contiguous body parts. While the impact of these factors on our business is
unclear, we do not expect to see any significant shift in the short term and we
believe it will be some time before there is a measurable change, if any.  Our business model is not skewed to the
outpatient centers and our focus is on clinically significant procedures that
are cost effective.  However, there is
risk that these factors may inhibit the growth rates or the absolute number of
radiology procedures that utilize our existing or future products and have an
adverse effect on our future sales and results of operations.

Item 2.
Unregistered Sales of Securities
  and Use of ProceedsOn November 1, 2006, we issued 1,750 shares of common
stock to our Chairman of the Board, Paul S. Echenberg, and 1,000 shares of
common stock to each of the following directors: Robert J. Beckman, James L.
Katz, David P. Meyers, John T. Preston, James H. Thrall and George P.
Ward.  All such shares were issued in
consideration for services rendered as directors for the 12 months

-37-

ended October 31, 2006 and were issued pursuant to the
exemption from registration under the Securities Act of 1933, as amended (the
Securities Act) provided by Section 4(2) of the Securities Act for
transactions not involving any public offering.

Item 3.
Defaults Upon Senior SecuritiesNone.

Item 4.
Submission Of Matters to a Vote of
  Security HoldersAt our annual meeting of stockholders held on October
18, 2006, the following persons were elected as directors of our company:

Class I Directors: (until the 2009
  Annual Meeting)James L. KatzAnthony A. LombardoJames H. Thrall, M.D.In this election, 8,164,804, 8,353,381 and 8,321,982
votes were cast for Mr. Katz, Mr. Lombardo and Mr. Thrall, respectively, and
1,779,548, 1,590,971 and 1,622,370 shares were withheld from voting for Mr.
Katz, Mr. Lombardo and Mr. Thrall, respectively.

The proposal to amend our 2004 Stock and Incentive
Award Plan to increase by 700,000 shares the number of shares of common stock
available for issuance under the Plan was approved by a vote of 5,699,608 in
favor, 1,899,455 against, 11,122 shares abstaining and 2,334,167 broker
non-votes.

The action of the Board of Directors in appointing
Grant Thornton LLP as our independent registered public accounting firm for our
fiscal year ending June 2, 2007 was ratified by a vote of 9,766,590 in favor,
91,844 against and 85,918 shares abstaining.

Item 5.
Other InformationNone.

Item 6.
ExhibitsNo.

Description

Page3.1

Restated Certificate of Incorporation of the
  Registrant, as amended

(a)3.2

Amended and Restated By-laws of the Registrant

(b)10.1

2004 Stock and Incentive Award Plan, as amended

(c)31.1

Certification pursuant to Rule 13a-14(a)/15d-14(a)
  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Anthony
  A. Lombardo)

42-38-

No.

Description

Page31.2

Certification pursuant to Rule 13a-14(a)/15d-14(a)
  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  (Dennis J. Curtin)

4432.1

Certification pursuant to Title 18, United States
  Code, Section 1350 as adopted pursuant to Section 906 of the
  Sarbanes-Oxley  Act of 2002 (Anthony
  A. Lombardo)

4632.2

Certification pursuant to Title 18, United States
  Code, Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
  Act of 2002 (Dennis J. Curtin)

47(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.(c)
Incorporated by reference to Exhibit 10.1 to the
  Registrants Current Report on Form 8-K filed with the Commission on  October 20, 2006.-39-

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)Date
January 11, 2007
/s/ Anthony A. LombardoAnthony A. Lombardo, President,Chief Executive Officer, Director(Principal Executive Officer)Date
January 11, 2007
/s/ Dennis J. CurtinDennis J. Curtin, Senior Vice 
  President - Chief Financial 
  Officer (Principal Financial and 
  Chief Accounting Officer)-40-

EXHIBIT
INDEX

No.

Description

Page3.1

Restated Certificate of Incorporation of the
  Registrant, as amended

(a)3.2

Amended and Restated By-laws of the Registrant

(b)10.1

2004 Stock and Incentive Award Plan, as amended

(c)31.1

Certification pursuant to
  Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002  (Anthony
  A. Lombardo)

4231.2

Certification pursuant to
  Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002 (Dennis J. Curtin)

4432.1

Certification pursuant to
  Title 18, United States Code, Section
  1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 (Anthony A. Lombardo)

4632.2

Certification pursuant to
  Title 18, United States Code, Section 1350 as adopted pursuant to Section 906
  of the Sarbanes-Oxley Act of 2002 (Dennis J. Curtin)

47(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.(c)
Incorporated by reference to Exhibit 10.1 to the
  Registrants Current Report on Form 8-K filed with the Commission on  October 20, 2006.-41-