UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended  December 1,
2007 OR oTRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to
_________ Commission file number 0-13003 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  xNo  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
filer   x      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  
oNo  x As of January
4, 2008, there were 11,085,080 shares of the issuers common stock outstanding.    E-Z-EM,
 Inc. and SubsidiariesINDEXPagePart I:
Financial InformationItem
l.
Financial StatementsConsolidated
 Balance Sheets  December 1, 2007 and June 2, 2007

3  4Consolidated
 Statements of Earnings  Thirteen and twenty-six weeks ended December 1, 2007
 and December 2, 2006

5Consolidated
 Statement of Stockholders Equity and Comprehensive Income  Twenty-six weeks
 ended December 1, 2007

6Consolidated
 Statements of Cash Flows  Twenty-six weeks ended December 1, 2007 and
 December 2, 2006

7  8Notes to
 Consolidated Financial Statements

9  24Item 2.
Managements
 Discussion and Analysis of Financial Condition and Results of Operations

25 - 39Item 3.
Quantitative
 and Qualitative Disclosures About Market Risk

39 - 40Item 4.
Controls
 and Procedures

40Part II:
Other InformationItem 1.
Legal Proceedings

41Item
 1A.
Risk
 Factors

41 - 42Item 2.
Unregistered
 Sales of Equity Securities and Use of Proceeds

42Item 3.
Defaults
 Upon Senior Securities

43Item 4.
Submission
 of Matters to a Vote of Security Holders

43Item 5.
Other
 Information

43Item 6.
Exhibits

43 - 44-2-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS(in thousands)

December 1,
2007

June 2,
2007(unaudited)

(audited)ASSETSCURRENT ASSETSCash and cash
equivalents


$
9,887



$
8,037Debt and
equity securities, at fair value



34,671




36,163Accounts
receivable, principally trade, net
  of allowance for doubtful accounts of $882 and $928 at December 1, 2007 and
  June 2, 2007, respectively



26,334




23,460Inventories,
net



34,305




29,799Refundable
income taxes



460




981Other current
assets



4,189




5,788Total current
assets



109,846




104,228PROPERTY, PLANT AND EQUIPMENT -
AT COST,
  less accumulated depreciation and amortization of $31,434 and $28,574 at
  December 1, 2007 and June 2, 2007, respectively



19,583




16,863INTANGIBLE ASSETS, less
accumulated
  amortization of $1,963 and $1,591 at December 1, 2007 and June 2, 2007,
  respectively



3,008




3,380DEBT AND EQUITY SECURITIES, at
fair value








1,196CASH SURRENDER VALUE OF LIFE
INSURANCE



6,739




6,471OTHER ASSETS



4,063




2,804Total
assets


$
143,239



$
134,942The 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)

December 1,
2007

June 2,
2007(unaudited)

(audited)LIABILITIES
  AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts
payable


$
8,400



$
7,574Accrued
liabilities



8,910




8,435Accrued income
taxes



741




1,175Total current
liabilities



18,051




17,184NONCURRENT
LIABILITIES



3,693




3,721Total
liabilities



21,744




20,905COMMITMENTS 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 11,085,080 shares at
  December 1, 2007 and 10,976,549 shares at June 2, 2007 (excluding 89,205
  shares held in treasury at December 1, 2007 and June 2, 2007)



1,109




1,098Additional
paid-in capital



33,714




31,779Retained
earnings



76,211




72,806Accumulated
other comprehensive income



10,461




8,354Total
stockholders equity



121,495




114,037Total
liabilities and stockholders equity


$
143,239



$
134,942The 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 endedDecember 1,
2007

December 2,
2006

December 1,
2007

December 2,
2006Net sales


$
43,637



$
34,171



$
76,604



$
67,611Cost of goods sold



24,814




18,882




43,315




37,731Gross
profit



18,823




15,289




33,289




29,880Operating expensesSelling,
general and administrative



12,767




11,437




24,899




22,578Costs
associated with planned merger



1,031









1,067Research and
development



1,654




1,559




3,589




2,935Total
operating expenses



15,452




12,996




29,555




25,513Operating
profit



3,371




2,293




3,734




4,367Other income
(expense)Interest
income



383




311




803




667Interest
expense



(74
)



(106
)



(144
)



(176
)Foreign
currency exchange gains (losses)



(227
)



247




(283
)



466Other,
net



600




56




783




111Earnings from
continuing operations before income taxes



4,053




2,801




4,893




5,435Income tax provision



1,293




983




1,488




1,834Earnings from
continuing operations



2,760




1,818




3,405




3,601Loss from discontinued
operation, net of income tax benefit of $19 and
  139 for the thirteen and twenty-six weeks ended December 2, 2006








(14
)








(235
)NET
EARNINGS


$
2,760



$
1,804



$
3,405



$
3,366Basic earnings (loss) per
common shareFrom
continuing operations


$
0.25



$
0.17



$
0.31



$
0.33From
discontinued operation, net of income tax benefit


















(0.02
)From total
operations


$
0.25



$
0.17



$
0.31



$
0.31Diluted earnings (loss) per
common shareFrom
continuing operations


$
0.25



$
0.16



$
0.30



$
0.32From
discontinued operation, net of income tax benefit


















(0.02
)From total
operations


$
0.25



$
0.16



$
0.30



$
0.30The 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 1, 2007 
(unaudited) 
(in thousands, except share data)

Accumulated
other
comprehensive
incomeCommon stock

Additional
paid-in
capital




Total

Compre-
hensive
incomeRetained
earningsShares

AmountBalance at June 2,
2007


10,976,549

$
1,098


$
31,779



$
72,806



$
8,354


$
114,037Exercise of stock
options


100,781


10



1,434













1,444Income tax benefits on stock
options exercised









186













186Compensation related to stock
option plans









156













156Issuance of stock


7,750


1



159













160Net earnings














3,405








3,405


$
3,405Unrealized holding loss on debt
and equity securitiesArising during
the period



















(176
)


(176
)


(176
)Reclassification adjustment for gains included in net earnings



















(437
)


(437
)


(437
)Foreign currency translation
adjustments



















2,720



2,720



2,720Comprehensive income


























$
5,512Balance at December 1,
2007


11,085,080

$
1,109


$
33,714



$
76,211



$
10,461


$
121,495The 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 endedDecember 1,
  2007

December 2,
  2006Cash flows from operating
activities:Net
earnings


$
3,405



$
3,366Loss from
discontinued operation, net of
  tax








235Adjustments to
reconcile net earnings to
  net cash provided by operating activitiesDepreciation
and amortization



1,977




1,755Gain on sale
of investments



(669
)Provision for
(reduction in) doubtful
  accounts



(18
)



46Deferred
income tax provision



165




648Stock option
compensation cost



156




42Stock
compensation cost



160




134Changes in
operating assets and
  liabilities, net of business divestedAccounts
receivable



(2,487
)



(2,392
)Inventories



(3,171
)



(892
)Other current
assets



2,298




1,470Other
assets



(1,385
)



(23
)Accounts
payable



688




253Accrued
liabilities



289




(2,385
)Accrued
income taxes



(457
)



309Other
noncurrent liabilities



(73
)



38Net cash used
in operating activities of
  discontinued operation








(123
)Net cash
provided by operating activities



878




2,481Cash flows from investing
activities:Additions to
property, plant and equipment,
  net



(3,642
)



(3,502
)Available-for-sale securitiesPurchases



(79,675
)



(226,025
)Proceeds from
sale



82,093




230,376Net cash
provided by investing activities
  of discontinued operation








2Net cash
provided by (used in) investing
  activities



(1,224
)



851The
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 endedDecember 1,
  2007

December 2,
  2006Cash flows from financing
activities:Repayments of
debt







$
(26
)Proceeds from
exercise of stock options


$
1,444




760Tax benefit on
exercise of stock options



186




339Net cash used
in financing activities of
  discontinued operation








(148
)Net cash
provided by financing activities



1,630




925Effect of exchange rate changes
on cash and
  cash equivalents



566




(948
)INCREASE IN
CASH AND CASH EQUIVALENTS



1,850




3,309Cash and cash
equivalentsBeginning of
period



8,037




6,749End of
period


$
9,887



$
10,058Supplemental disclosures of
cash flow
  information:Cash paid
(refunded) during the period for:Interest


$
105



$
103Income taxes
(net of refunds of $468 and
  $1,161 in 2007 and 2006, respectively)


$
1,060



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

-8-

E-Z-EM, Inc. and
Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 1, 2007
and December 2, 2006
(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 devices and contrast 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 computed tomography (CT)
 and magnetic resonance (MR) imaging, 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 its RSDL skin decontaminant (RSDL) product for
 military services and first-responder organizations. 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 providing contract
 manufacturing to third-parties.Basis
 of PresentationThe consolidated balance sheet as of December 1,
 2007, the consolidated statement of stockholders equity and comprehensive
 income for the twenty-six weeks ended December 1, 2007, the consolidated
 statements of earnings for the thirteen and twenty-six weeks ended December
 1, 2007 and December 2, 2006, and the consolidated statements of cash flows
 for the twenty-six weeks ended December 1, 2007 and December 2, 2006, have
 been prepared by the Company without audit. The consolidated balance sheet as
 of June 2, 2007 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 1, 2007 (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 2, 2007, filed
 by the Company on August 16, 2007. The results of operations for the periods
 ended December 1, 2007, and December 2, 2006, are not necessarily indicative
 of the operating results for the respective full years.-9-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007
and December 2, 2006
(unaudited)

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

The consolidated financial statements include the accounts
 of E-Z-EM, Inc. and all wholly owned subsidiaries. Toho Kagaku Kenkyusho Co.,
 Ltd. (Toho), the Companys wholly owned Japanese subsidiary, is reported
 separately as a discontinued operation for the periods ended December 2, 2006
 within the consolidated financial statements (see Note C). All significant
 intercompany balances and transactions have been eliminated.NOTE B - MERGER AGREEMENT

On October 30, 2007, the Company, Bracco
 Diagnostics, Inc., a Delaware corporation (Bracco), Eagle Acquisition Sub,
 Inc., a wholly owned subsidiary of Bracco (Merger Sub), and,
 for limited purposes, Bracco Imaging S.p.A., an Italian
 corporation (Bracco Imaging) entered into a definitive Agreement
 and Plan of Merger (the Merger Agreement). Under the terms of the Merger
 Agreement, Merger Sub will merge with and into the Company (the Merger),
 with the Company continuing after the Merger as the surviving entity and a
 wholly owned subsidiary of Bracco. Bracco is the U.S.-based subsidiary of the
 Bracco Group, which is headquartered in Milan, Italy.Under the terms of the Merger Agreement, at the
 effective time of the Merger, each of the issued and outstanding shares of
 common stock of the Company (other than shares held by Bracco, Merger Sub,
 the Company or any of their respective wholly owned subsidiaries, or
 shares held by any stockholders exercising appraisal rights) will be
 converted into the right to receive $21.00 in cash per share (without
 interest and subject to any required tax withholding).The Merger Agreement has been approved unanimously
 by the Board of Directors of the Company, with the two non-independent
 directors abstaining.The Merger Agreement contains customary
 representations and warranties by the Company, Bracco and Merger Sub. The
 Merger Agreement also contains customary covenants and agreements, including
 with respect to the operation of the business of the Company and its
 subsidiaries between signing and closing, governmental filings and approvals,
 public disclosures and similar matters. Additionally, the Company has agreed
 not to solicit alternative transactions or, subject to certain exceptions
 relating to unsolicited proposals, participate in discussions relating to an
 alternative transaction or furnish non-public information relating to an
 alternative transaction. The Company has also agreed that during the pendency
 of the Merger it will operate its business in the ordinary course of business
 consistent with past practice and not to take certain actions specified in the
 Merger Agreement.-10-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007
and December 2, 2006
(unaudited)

NOTE B - MERGER AGREEMENT (continued)

Consummation of the Merger is subject to the
 satisfaction of customary closing conditions, including (i) the approval of
 the Merger by the Companys stockholders, (ii) the absence of any order,
 injunction or legal restraint or prohibition preventing the consummation of
 the Merger, (iii) the accuracy of the representations and warranties of the
 other party (subject to the materiality standards and, with respect to the
 Companys representations, an overall material adverse effect standard
 contained in the Merger Agreement), and (iv) compliance in all material
 respects of the other party with its covenants. In addition, the Merger is
 subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act
 of 1976 and the Exon-Florio provision of the Defense Protection Act of 1950,
 and the receipt of regulatory approvals under German competition regulations. All of the initial filings and
 notifications required to obtain such antitrust and other regulatory
 approvals have been made, although neither the Company nor Bracco has yet
 obtained any of such antitrust or other regulatory approvals required to
 complete the merger. Stockholders will be asked to vote on the proposed
 transaction at a special meeting on a date to be announced. The Company
 currently anticipates that it will file its preliminary proxy statement
 regarding the merger in January 2008 and that, if all of the conditions to
 consummating the merger are satisfied, the merger will close in the first or
 second calendar quarter of 2008. Availability of financing for the Merger is
 not a condition to Braccos obligation to complete the Merger, and Bracco
 Imaging has agreed to cause Bracco to have sufficient funds to pay the merger
 consideration and otherwise satisfy its obligations under the Merger
 Agreement.The Merger Agreement contains certain termination
 rights for both the Company and Bracco and provides that, upon termination of
 the Merger Agreement under specified circumstances described in the Merger
 Agreement, the Company will be required to pay Bracco a termination fee of
 $9.0 million.The Merger Agreement contains representations and
 warranties that the parties have made to each other as of specific dates. The
 assertions embodied in those representations and warranties were made solely
 for purposes of the contract between the parties, and may be subject to
 important qualifications and limitations agreed to by the parties in
 connection with negotiating its terms. Moreover, the representations and
 warranties are subject to a contractual standard of materiality that may be
 different from what may be viewed as material to stockholders, and the
 representations and warranties may have been intended not as statements of
 fact, but rather as a way of allocating risk among the parties. Accordingly,
 they should not be relied on as statements of factual information. Stockholders
 are not third-party beneficiaries under the Merger Agreement and should not
 rely on the representations, warranties and covenants or any descriptions
 thereof as characterizations of the actual state of facts or condition of the
 Company or its subsidiaries.-11-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007
and December 2, 2006
(unaudited)

NOTE B - MERGER AGREEMENT (continued)

Concurrently with the entry into the Merger
 Agreement, certain stockholders of the Company owning an aggregate of
 approximately 34% of the Companys outstanding shares as of October 30, 2007,
 entered into a voting agreement with Bracco and the Company pursuant to which
 they have agreed, subject to certain exceptions, to vote in favor of adopting
 the Merger Agreement and approving the Merger and the transactions
 contemplated thereby and against any transaction or other action that is or
 would reasonably be expected to prevent or materially delay the merger and
 the other transactions contemplated by the Merger Agreement.For the thirteen and twenty-six weeks ended December
 1, 2007, merger costs, primarily legal, accounting and investment banking
 fees, aggregated $1,031,000 and $1,067,000, respectively.NOTE C 
DISCONTINUED OPERATION

In fiscal 2007, the Company completed the wind-down
 of Toho. The Company decided to close Toho and exit the Japanese market
 because it was unable to generate sufficient income from operations and 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 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 exit, 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 the periods
 ended December 2, 2006, Toho is accounted for as a discontinued operation in
 the Companys financial statements in accordance with Statement of Financial Accounting
 Standards (SFAS) No. 144, Accounting for Impairment and Disposal of
 Long-Lived Assets.-12-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE C  DISCONTINUED OPERATION (continued)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. 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



$
234Summarized 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
 December 2,
 2006

Twenty-six
 weeks ended
 December 2,
 2006(in thousands)Net sales (credits) from
unaffiliated 
 customers


$
(11
)


$
183Total net sales
(credits)


$
(11
)


$
183Loss before income
taxes


$
(33
)


$
(374
)Income tax benefit



(19
)



(139
)Loss from discontinued
operation


$
(14
)


$
(235
)NOTE D - STOCK-BASED COMPENSATIONEffective
 June 4, 2006, the Company 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) 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.-13-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE D - STOCK-BASED COMPENSATION (continued)The Company
 adopted SFAS No. 123(R) 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 applies 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) did not apply to any stock
 options outstanding as of June 4, 2006, since all such options were fully
 vested.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. No awards other than stock options have been granted under the
 Companys plans.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.For the
 thirteen and twenty-six weeks ended December 1, 2007, the Company recognized
 pre-tax share-based compensation expense of $78,000 ($51,000 after tax
 effects) and $156,000 ($102,000 after tax effects), respectively, for awards
 to members of the Board of Directors granted during the fourth quarter of
 fiscal 2007. For the thirteen and twenty-six weeks ended December 2, 2006,
 the Company recognized pre-tax share-based compensation expense of $21,000
 ($14,000 after tax effects) and $42,000 ($27,000 after tax effects),
 respectively, for options granted in prior years to a former director serving
 as a consultant. These expenses are included in selling, general and
 administrative expense in the accompanying consolidated statements of
 earnings. The Company recognizes share-based compensation costs on a
 straight-line basis over the service period. At December 1, 2007, there was
 $156,000 of total unrecognized compensation cost related to non-vested stock
 options granted under the Companys stock-based compensation plans, which
 will be recognized over a weighted-average remaining life of approximately
 one-half year.-14-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE D - STOCK-BASED COMPENSATION (continued)In November 2005, the
 Financial Accounting Standards Board (FASB) issued Staff Position
 No. FAS 123(R)-3, Transition
 Election Related to Accounting for the Tax Effects of Share-Based Payment
 Awards (FSP 123R-3). The Company has elected to adopt the
 alternative transition method provided in FSP 123R-3 for calculating the tax
 effects of stock-based compensation under SFAS 123R. The alternative
 transition method includes simplified methods to establish the beginning
 balance of the additional paid-in-capital pool (APIC pool) related to the
 tax effects of stock-based compensation, and for determining the subsequent
 impact on the APIC pool and consolidated statements of cash flows of the tax
 effects of stock-based compensation awards that are outstanding upon adoption
 of SFAS No. 123(R).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.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 other
 incentive awards to employees, directors and other service providers. A total
 of 1,708,425 shares (including 700,000 shares authorized in October 2006) 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 and the terms and conditions of any other awards made
 under the 2004 Plan. 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 1, 2007, there were 696,175
 shares available for grants of options and other awards under the 2004 Plan.-15-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE D - 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 fair
 value of options granted is estimated on the date of grant using the
 Black-Scholes option-pricing model based on weighted-average assumptions for
 all plans for expected life (years), expected volatility, risk-free interest
 rate, dividend yield and pre-vesting forfeitures. No options were granted
 during the thirteen and twenty-six weeks ended December 1, 2007 and December
 2, 2006.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 paid any
 dividends and does not expect to in the foreseeable future. The amount of
 stock-based compensation expense recognized during a period is based on the
 portion of the awards that are ultimately expected to vest. The Company
 estimates pre-vesting forfeitures at the time of grant by analyzing
 historical data and revises those estimates in subsequent periods if actual
 forfeitures differ significantly from those estimates. Ultimately, the total
 expense recognized over the vesting period will equal the fair value of
 awards that actually vest.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-16-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE D - STOCK-BASED COMPENSATION (continued)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.The
 following is a summary of the stock option activity during the twenty-six
 weeks ended December 1, 2007:Number
 of
 Shares
 (000)

Weighted
 Average
 Exercise
 Price

Weighted
 
 Average 
 Remaining
 Contractual
 Life in
 Years

Aggregate
 Intrinsic
 Value(000)Outstanding at beginning of
 period

1,279



$
12.45


6.80Exercised

(101
)



14.33


7.29Outstanding at end of
period

1,178



$
12.29


6.23



$
9,907Vested or expected to vest at

 end of period

1,143



$
12.16


6.13



$
9,767Exercisable at end of
period

1,143



$
12.16


6.13



$
9,767The
 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

Aggregate
 Intrinsic
 Value(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
 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 1,
 2007 was $621,000. 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.-17-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE D - STOCK-BASED COMPENSATION (continued)The Company
 received cash of $1,444,000 from stock options exercised during the thirteen
 and twenty-six weeks ended December 1, 2007, and $710,000 and $760,000 from
 stock options exercised during the thirteen and twenty-six weeks ended
 December 2, 2006, respectively. These cash receipts are included in financing
 activities in the accompanying consolidated statements of cash flows. The
 Company realized tax benefits of $186,000 from the exercise of stock options
 during the thirteen and twenty-six weeks ended December 1, 2007 and $224,000
 and $339,000 from the exercise of stock options during the thirteen and
 twenty-six weeks ended December 2, 2006, respectively.On November
 1, 2007 and November 1, 2006, 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 $160,000 and $133,000 for the thirteen and twenty-six
 weeks ended December 1, 2007 and December 2, 2006, respectively. These
 expenses are included in selling, general and administrative expense in the
 accompanying consolidated statements of earnings.NOTE E - EARNINGS PER COMMON SHAREBasic
 earnings per share are based on the weighted average number of common shares
 outstanding without consideration of potential common shares. Diluted earnings
 per share are based on the weighted average number of common shares 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 of the common shares during the period.The
 following table sets forth the reconciliation of the weighted average number
 of common shares:Thirteen
 weeks ended


Twenty-six
 weeks endedDecember
 1,
 2007


December
 2,
 2006


December
 1,
 2007


December
 2,
 2006(in
 thousands)Basic

11,014


10,892


10,995


10,880Effect of dilutive securities

 (stock options)

244


195


218


193Diluted

11,258


11,087


11,213


11,073Excluded
 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 of the excluded options was $15.64 to $17.49 per share for
 the thirteen and twenty-six weeks ended December 2, 2006.-18-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE F - EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSIn June 2006, the FASB
 issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
 (FIN 48), an interpretation of FASB Statement No. 109. 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 criterion, FIN 48 requires that 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
 adopted FIN 48 as of June 3, 2007. The adoption of FIN 48 has not had a material
 effect on the Companys 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 that the adoption of
 SFAS No. 157 will have a material impact on its financial condition or
 results of operations.In February
 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
 Financial Liabilities - Including an amendment of FASB Statement No. 115.
 SFAS No. 159 permits entities to choose to measure many financial instruments
 and certain other items at fair value that are not currently required to be
 measured at fair value. The objective of SFAS No. 159 is to provide
 opportunities to mitigate volatility in reported earnings caused by measuring
 related assets and liabilities differently without having to apply hedge
 accounting provisions. SFAS No. 159 also establishes presentation and
 disclosure requirements designed to facilitate comparisons between companies
 that choose different measurement attributes for similar types of assets and
 liabilities. SFAS No. 159 is effective for fiscal years beginning after
 November 15, 2007. The Company does not believe that the adoption of SFAS No.
 159 will have a material impact on its financial condition or results of
 operations.-19-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE G - COMPREHENSIVE INCOME

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

Thirteen
 weeks ended

Twenty-six
 weeks endedDecember
 1,
 2007

December
 2,
 2006

December
 1,
 2007

December
 2,
 2006(in
 thousands)Net earnings


$
2,760



$
1,804



$
3,405



$
3,366Unrealized holding gain (loss)
on debt and equity securities:Arising during
the period



92




77




(176
)



177Reclassification adjustment for gains included in net earnings



(355
)








(437
)Foreign currency translation
adjustments arising during the period



2,469




(1,213
)



2,720




(1,253
)Comprehensive
income


$
4,966



$
668



$
5,512



$
2,290The components
 of accumulated other comprehensive income, net of related tax, are as
 follows:December
 1,
 2007

June
 2,
 2007(in
 thousands)Unrealized holding gain on debt
and equity securities















$
613Cumulative translation
adjustments












$
10,461




7,741Accumulated
other comprehensive income








$
10,461



$
8,354-20-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE H - DEBT AND EQUITY SECURITIES

Debt
and equity securities at December 1, 2007 consisted of the following:

Amortized
 cost

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


$
9,300



$
9,300Due after 10 years and
through 20 years



200




200Due after 20 years



25,155




25,155Other



16




16$
34,671



$
34,671Debt and
 equity securities at June 2, 2007 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 after 10 years and through
20 years


$
18,400



$
18,400Due after 20 years



17,575




17,575Other



188




188$
36,163



$
36,163NoncurrentAvailable-for-sale
securities(carried on the balance sheet at
fair
 value)Equity securities


$
257



$
1,196



$
939$
257



$
1,196



$
939-21-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE H - DEBT AND EQUITY SECURITIES
(continued)

During the
 thirteen and twenty-six weeks ended December 1, 2007, the Company sold 32,332
 shares and 42,332 shares, respectively, of its investment in Vital Images
 Inc. The Company recognized gains on these sales totaling $543,000 and
 $669,000, respectively, during the thirteen and twenty-six weeks ended
 December 1, 2007, which are included in the consolidated statements of
 earnings under the caption Other, net.NOTE I - INVENTORIES

Inventories
 consist of the following:December 1,
 2007

June 2,
 2007(in thousands)Finished
 goods


$
16,648


$
15,016Work in
 process



500



247Raw
 materials



17,157



14,536$
34,305


$
29,799NOTE J - INCOME TAXES

For the
 thirteen weeks ended December 1, 2007, the Companys effective tax rate of
 32% differed from the Federal statutory tax rate of 34% due primarily to
 tax-exempt income, partially offset by non-deductible expenses. For the
 twenty-six weeks ended December 1, 2007, the Companys effective tax rate of
 30% differed from the Federal statutory tax rate of 34% due primarily to
 tax-exempt income, partially offset by non-deductible expenses.For the
 thirteen weeks ended December 2, 2006, the Companys 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 twenty-six weeks ended December 2, 2006, the
 Companys effective tax rate of 34% equaled the Federal statutory tax rate as
 the effects of non-deductible expenses offset tax-exempt income.The Company
 files a Federal income tax return and tax returns in various state
 jurisdictions. The Companys subsidiaries also file tax returns in their
 local jurisdictions of Canada, the United Kingdom and the Netherlands.-22-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE J - INCOME TAXES (continued)

The U.S.
 Federal income tax returns of the Company through May 31, 2003 are closed by
 Internal Revenue Code regulations. The income tax returns filed by the
 Companys Canadian and Netherlands subsidiaries in their local tax
 jurisdictions through May 31, 2003 are closed by local statutes. The U.K.
 income tax returns filed by the Companys U.K. subsidiary through May 31,
 2005 are closed by local statutes.The
 Companys New York State tax returns for fiscal years 2003 through 2005 are
 currently under audit. The Company does not anticipate any material changes
 to the returns as filed.The Company
 accounts for interest and penalties related to income tax matters in income
 tax provision.NOTE K  CONTINGENCIES

Litigation MattersOn June 20,
2007, an action was filed against the Company entitled Tyco Healthcare Group
LP, Mallinckrodt Inc. and Liebel-Flarsheim Company vs. E-Z-EM, Inc. Case no.
2-07CV-262 in the U.S. District Court for the Eastern District of Texas,
Marshall Division. The complaint alleged that the Company willfully,
deliberately and intentionally infringed and is continuing to infringe on
U.S. patent no. 5,868,710 (the 710 patent) by making, using, offering to
sell, selling and/or importing certain injector systems, including but not
limited to its Empower CT®and Empower CTA® injectors. The complaint alleged
that the Companys actions have caused, and will continue to cause, the
plaintiffs to suffer substantial damage and irreparable injury. The complaint
sought to prohibit the Company from continuing to market and sell these
products and asked for compensatory and treble money damages, reasonable
attorneys fees, costs and pre-judgment interest.On August
 30, 2007, the Company filed an answer denying the allegations in the
 complaint, pleading several affirmative defenses and bringing a counterclaim
 seeking a declaration that the claims of the 710 patent are invalid. The
 Company also moved to dismiss Tyco and Mallinckrodt as plaintiffs for lack of
 standing. The parties entered into a stipulation to remove Tyco as a
 plaintiff in the action and, on September 19, 2007, the court ordered the
 dismissal with prejudice of Tyco from the action.-23-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 1, 2007 and December 2, 2006
(unaudited)

NOTE K  CONTINGENCIES (continued)

On September
 18, 2007, Mallinckrodt and Liebel-Flarsheim filed a first amended complaint
 that substantially restated the claims alleged in the initial complaint. On
 October 1, 2007, the Company filed an answer denying the allegations in the
 first amended complaint, pleading several affirmative defenses and bringing a
 counterclaim seeking a declaration that the claims of the 710 patent are
 invalid. The Company believes that it has valid defenses to the infringement
 claims, including invalidity of certain claims of the 710 patent, and intends
 to defend the matter vigorously.The Company
 is party to other claims, legal actions and complaints that arise in the
 ordinary course of business. The Company believes that any liability that may
 ultimately result from the resolution of these matters will not, individually
 or in the aggregate, have a material adverse effect on its financial position
 or results of operations.Concentration of Credit RiskFor the
 thirteen weeks ended December 1, 2007 and December 2, 2006, sales of products
 to Merry X-Ray Corporation (Merry X-Ray) represented 25% and 34% of total
 sales, respectively. For the twenty-six weeks ended December 1, 2007 and
 December 2, 2006, sales of products to Merry X-Ray represented 28% and 34% of
 total sales, respectively. Approximately 28% and 35% of accounts receivable
 pertained to Merry X-Ray at December 1, 2007 and June 2, 2007, respectively.
 While the accounts receivable related to Merry X-Ray are significant, the
 Company does not believe the credit risk to be significant given the
 consistent payment history of this distributor.NOTE L - COMMON STOCK

Stock 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 1, 2007
 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.-24-

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 that 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
2007 fiscal year. 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 which 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.

Proposed Merger with Bracco Diagnostics, Inc.

On October 30,
2007, we, Bracco Diagnostics, Inc., a Delaware corporation (Bracco), Eagle
Acquisition Sub, Inc., a wholly owned subsidiary of Bracco (Merger Sub), and,
for limited purposes, Bracco Imaging S.p.A., an Italian corporation (Bracco
Imaging) entered into a definitive Agreement and Plan of Merger (the merger
agreement). Under the terms of the merger agreement,

-25-

Merger Sub
will merge with and into E-Z-EM (the merger), with E-Z-EM continuing after
the merger as the surviving entity and a wholly owned subsidiary of Bracco.
Bracco is the U.S.-based subsidiary of the Bracco Group, which is headquartered
in Milan, Italy.

Under the
terms of the merger agreement, at the effective time of the merger, each of our
issued and outstanding shares of common stock (other than shares held by
Bracco, Merger Sub, E-Z-EM or any of their respective wholly owned
subsidiaries, or shares held by any stockholders exercising appraisal rights)
will be converted into the right to receive $21.00 in cash per share (without
interest and subject to any required tax withholding).

The merger
agreement has been approved unanimously by our board of directors, with the two
non-independent directors abstaining.

The merger
agreement contains customary representations and warranties by us, Bracco and
Merger Sub. The merger agreement also contains customary covenants and
agreements, including with respect to the operation of our business and that of
our subsidiaries between signing and closing, governmental filings and
approvals, public disclosures and similar matters. Additionally, we have agreed
not to solicit alternative transactions or, subject to certain exceptions
relating to unsolicited proposals, participate in discussions relating to an
alternative transaction or furnish non-public information relating to an
alternative transaction. We have also agreed that during the pendency of the
merger we will operate our business in the ordinary course of business
consistent with past practice and not take certain actions specified in the
merger agreement.

Consummation
of the merger is subject to the satisfaction of customary closing conditions,
including (i) the approval of the merger by our stockholders, (ii) the absence
of any order, injunction or legal restraint or prohibition preventing the
consummation of the merger, (iii) the accuracy of the representations and
warranties of the other party (subject to the materiality standards and, with
respect to our representations, an overall material adverse effect standard
contained in the merger agreement), and (iv) compliance in all material
respects of the other party with its covenants. In addition, the merger is
subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the Exon-Florio provision of the Defense Protection Act of 1950, and
the receipt of regulatory approvals under German competition regulations. All of the initial filings and
notifications required to obtain such antitrust and other regulatory approvals
have been made, although neither we nor Bracco have yet obtained any of such
antitrust or other regulatory approvals required to complete the merger.
Stockholders will be asked to vote on the proposed transaction at a special
meeting on a date to be announced. We currently anticipate that we will file
our preliminary proxy statement regarding the merger in January 2008 and that,
if all of the conditions to consummating the merger are satisfied, the merger
will close in the first or second calendar quarter of 2008. Availability of
financing for the merger is not a condition to Braccos obligation to complete
the merger, and Bracco Imaging has agreed to cause Bracco to have sufficient
funds to pay the merger consideration and otherwise satisfy its obligations
under the merger agreement.

The merger
agreement contains certain termination rights for both us and Bracco and
provides that, upon termination of the merger agreement under specified
circumstances described in the merger agreement, we will be required to pay
Bracco a termination fee of $9.0 million.

-26-

The merger
agreement contains representations and warranties that the parties have made to
each other as of specific dates. The assertions embodied in those
representations and warranties were made solely for purposes of the contract
between the parties, and may be subject to important qualifications and
limitations agreed to by the parties in connection with negotiating its terms.
Moreover, the representations and warranties are subject to a contractual
standard of materiality that may be different from what may be viewed as
material to stockholders, and the representations and warranties may have been
intended not as statements of fact, but rather as a way of allocating risk
among the parties. Accordingly, they should not be relied on as statements of
factual information. Stockholders are not third-party beneficiaries under the
merger agreement and should not rely on the representations, warranties and
covenants or any descriptions thereof as characterizations of the actual state
of facts or our condition or that of our subsidiaries.

Concurrently
with the entry into the merger agreement, certain stockholders of E-Z-EM owning
an aggregate of approximately 34% of our outstanding shares as of October 30,
2007, entered into a voting agreement with Bracco and us pursuant to which they
have agreed, subject to certain exceptions, to vote in favor of adopting the
merger agreement and approving the merger and the transactions contemplated
thereby and against any transaction or other action that is or would reasonably
be expected to prevent or materially delay the merger and the other
transactions contemplated by the merger agreement.

Overview

We are a
leading provider of medical diagnostic contrast agents and devices used in the
diagnosis of abdominal disease. Our customers include radiologists,
gastroenterologists and speech language pathologists. Our focus has been on
becoming a worldwide CT solutions company for the computed tomography (CT)
market. This focus is driven by the trend away from older fluoroscopic
procedures (e.g., barium enema) to CT-based applications for imaging the entire
abdominal tract because of the enhanced benefits of Multi-detector 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, for example VoLumen, that
allow enhanced images from CT and CT Angiography applications utilizing Multi-detector
CT technology. We also manufacture and market a line of CT and MR power
injectors that deliver injectable contrast agents.

In addition to
our products for the radiology market, we also market a unique healthcare
decontaminant product. RSDL skin decontaminant (RSDL) is a liquid skin
decontaminant that neutralizes or removes a broad spectrum of chemical warfare
and T-2 toxic agents. In March 2007, the U.S. Department of Defense (DoD)
determined that RSDL had satisfied all final configuration testing criteria,
and approved it for initial procurements by the individual service branches.
The decision, known as Milestone C, cleared the way for deployment of RSDL as
the DoDs next generation skin decontaminant for protection against chemical
warfare agents. In March 2007, we received an initial order for $5.07 million
for RSDL from the U.S. Army Space and Missile Command. Since then, we have
received additional orders for RSDL and its training variant totaling
approximately $12.5 million from the U.S. Army Space and Missile Command. At
the DoDs request, we stored approximately $3.5 million of RSDL product
relating to the initial order at our facility pending the DoDs order to ship.
The DoD inspected and formally accepted this product in May 2007 and paid for
this product in July 2007. In November

-27-

2007, we
shipped this product as well as the balance of the initial $5.07 million order
and recognized the revenue from this transaction. We expect to ship the balance
of these orders by the end of our current fiscal year. Revenues will be
recognized when the product is shipped.

Our pricing
flexibility is constrained under our agreements with large group purchasing
organizations (GPO or GPOs) - groups of hospitals and other large customers
formed to combine purchasing power. Due to the multi-year terms of typical GPO
contracts, our ability to pass along base cost increases through increased
prices is limited. Consolidation in the healthcare industry has also resulted
in a broader product range in typical GPO contracts. Transactions with GPOs are
often larger, more complex, and involve more long-term contracts. GPOs
enhanced purchasing power may continue to increase the pressure on product
pricing in the market as a whole. Additionally, some of our competitors have,
and may in the future enter into other, agreements with GPOs. In the past, some
of these GPOs have not strictly enforced these contracts against their members,
and, by lowering our prices, we have been able to continue to sell our products
directly to their members. However, should these GPOs determine to enforce this
contractual obligation against their members, it could have a material adverse
effect on our sales, and thus our operating results, in future periods.

The CT imaging
market in calendar 2007 has been adversely affected by the Deficit Reduction
Act of 2005 (DRA), which took effect on January 1, 2007. The DRA effectively
reduced Medicare and Medicaid reimbursement rates for MR, CT and PET/CT
procedures performed at outpatient imaging centers. Although the effect of DRA
remains to be quantified, some of our customers have advised us that they have
delayed plans to purchase imaging equipment, at least in the near term, in
order to assess the impact of DRA on their businesses.

In fiscal
2007, we completed the wind-down of Toho Kagaku Kenkyusho Co., Ltd. (Toho),
our wholly owned Japanese subsidiary. We decided to close Toho and exit this
market because we were unable to generate sufficient income from operations to
grow the business due to a limited product offering and the scope of Tohos
operations. Also, a recent 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
inventory, collect accounts receivable and sell the property in an organized
fashion, while also satisfying all outstanding liabilities. For the quarter and
six months ended December 2, 2006, Toho is accounted for as a discontinued
operation in our financial statements in accordance with SFAS No. 144,
Accounting for Impairment and Disposal of Long-Lived Assets.

Results of Operations

Quarters ended December 1, 2007 and December
2, 2006

Our quarters
ended December 1, 2007 and December 2, 2006 both represent thirteen weeks.

Consolidated Results of Operations

For the
quarter ended December 1, 2007, we reported net earnings of $2,760,000, or
$0.25 per common share on both a basic and diluted basis, as compared to net
earnings of $1,804,000, or $0.17 and $0.16 per common share

-28-

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 quarters ended December 1, 2007 and December 2, 2006:

2007

2006(in
 thousands)Earnings
 from continuing operations

$
2,760

$
1,818Loss from
 discontinued operation





(14
)Net earnings

$
2,760

$
1,804Our results
are expressed as a percentage of net sales for the quarters ended December 1,
2007 and December 2, 2006 in the following table:

2007

2006Net sales


100.0
%

100.0
%Cost of
 goods sold


56.9


55.3Gross
profit


43.1


44.7Operating
 expensesSelling,
general and administrative


29.2


33.5Costs
associated with planned merger


2.4Research and
development


3.8


4.5Total operating
expenses


35.4


38.0Operating
profit


7.7


6.7Other income
 (expense)Interest
income


0.9


0.9Interest
expense


(0.2
)

(0.3
)Foreign
currency exchange gains (losses)


(0.5
)

0.7Other,
net


1.4


0.2Earnings from
continuing operations before
 income taxes


9.3


8.2Income tax
 provision


3.0


2.9Earnings from
continuing operations


6.3


5.3Loss from
 discontinued operation, net of income tax benefit





(0.0
)NET
EARNINGS


6.3
%

5.3
%Continuing Operations

Operating
profit for the current quarter increased by $1,078,000 due to increased sales,
partially offset by increased operating expenses of $2,456,000, including
$1,031,000 in costs incurred in connection with the planned merger with Bracco.

-29-

Net sales for
the quarter ended December 1, 2007 increased 28%, or $9,466,000, as compared to
the quarter ended December 2, 2006, due to higher sales volumes, foreign
currency exchange fluctuations, which increased the translated amounts of
foreign subsidiaries sales to U.S. dollars for financial reporting purposes by
$1,505,000, and price increases. Price increases accounted for approximately
2.4% of net sales for the current quarter, as 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 increase resulted primarily
from increased sales of healthcare decontaminants of $5,847,000, CT injector
systems of $1,696,000, contact manufacturing products of $1,391,000 and virtual
colonoscopy products of $396,000.

The CT imaging
market in calendar 2007 has been adversely affected by the Deficit Reduction
Act of 2005 (DRA), which took effect on January 1, 2007. The DRA effectively
reduced Medicare and Medicaid reimbursement rates for MR, CT and PET/CT
procedures performed at outpatient imaging centers. Although the effect of DRA
remains to be quantified, some of our customers have advised us that they have
delayed plans to purchase imaging equipment, at least in the near term, in
order to assess the impact of DRA on their businesses. We believe that this has
reduced sales of our CT imaging products in the current quarter and may
continue to adversely affect these sales in future quarters.

Net sales in
international markets, including direct exports from the United States,
increased 27%, or $2,869,000, for the current quarter from the prior years
quarter due to higher sales volumes, foreign currency exchange fluctuations,
which increased the translated amounts of foreign subsidiaries sales to U.S.
dollars for financial reporting purposes by $865,000, and price increases,
which accounted for approximately 11⁄2% of net sales in international markets for
the current quarter. On a product line basis, the net sales increase resulted
primarily from increased sales of contact manufacturing products of $800,000,
CT injector systems of $691,000, X-ray fluoroscopy products of $654,000 and
virtual colonoscopy products of $473,000.

The following
table sets forth net sales by product category for the quarters ended December
1, 2007 and December 2, 2006:

2007

2006$

%

$

%(dollars in thousands)CT Imaging
 Contrast

$
9,083


20.8

$
9,170


26.8CT Injector
 Systems


8,652


19.8


6,956


20.4Total CT
Imaging


17,735


40.6


16,126


47.2X-Ray
 Fluoroscopy


11,294


25.9


11,179


32.7Healthcare
 Decontaminants


6,196


14.2


349


1.0Contract
 Manufacturing


3,113


7.1


1,722


5.0Virtual
 Colonoscopy


1,796


4.1


1,400


4.1Accessory
 Medical Devices


1,316


3.0


1,226


3.6Gastroenterology


1,203


2.8


1,062


3.1Other


984


2.3


1,107


3.3$
43,637


100.0

$
34,171


100.0Gross profit,
expressed as a percentage of net sales, was 43% for the current quarter
compared to 45% for the comparable quarter of the prior year due to increased
costs for finished products purchased from our Canadian subsidiary,

-30-

which resulted
from the continued weakening of the U.S. dollar against the Canadian dollar,
partially offset by sales price increases.

Selling,
general and administrative (SG&A) expenses were $12,767,000 for the
quarter ended December 1, 2007 compared to $11,437,000 for the quarter ended
December 2, 2006. This increase of $1,330,000, or 12%, was due primarily to
unfavorable foreign currency exchange fluctuations, which increased the
translated amounts of foreign subsidiaries SG&A expenses to U.S. dollars
for financial reporting purposes by $400,000, costs of $340,000 associated with
an increase in the size of our North American sales force, and legal fees of
$261,000 incurred in the defense of the Tyco lawsuit, which is continuing.

Research and
development (R&D) expenditures for the current quarter increased 6% to
$1,654,000, or 4% of net sales, from $1,559,000, or 5% of net sales, for the
comparable quarter of the prior year due to increased general regulatory costs
resulting from our adding personnel to support planned increases in
international product registrations. Of the R&D expenditures for the
current quarter, approximately 61% related to CT imaging and X-ray fluoroscopy
projects, 31% to general regulatory costs, 4% to gastroenterology projects and
4% to other projects. R&D expenditures are expected to be 5% of net sales
for the remainder of this fiscal year.

Other income
(expense) totaled $682,000 of income for the current quarter compared to income
of $508,000 for the comparable period of last year. This improvement is due
primarily to gains of $543,000 from sales of non-core equity securities and
increased interest income of $72,000, partially offset by unfavorable changes
in foreign currency exchange gains and losses of $474,000, resulting from the
weakening of the U.S. dollar.

For the
quarter ended December 1, 2007, our effective tax rate of 32% differed from the
Federal statutory tax rate of 34% due primarily to tax-exempt income, partially
offset by non-deductible expenses. 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.

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 statement
of earnings for the quarter ended December 2, 2006 are as follows:

(in thousands)Net sales
 (credits) from unaffiliated customers


$
(11
)Total net
 sales (credits)


$
(11
)Loss before
 income taxes


$
(33
)Income tax
 benefit



(19
)Loss from
 discontinued operation


$
(14
)-31-

Six months ended December 1, 2007 and
December 2, 2006

Our six months
ended December 1, 2007 and December 2, 2006 both represent twenty-six weeks.

Consolidated Results of Operations

For the six
months ended December 1, 2007, we reported net earnings of $3,405,000, or $0.31
and $0.30 per common share on a basic and diluted basis, respectively, as
compared to net earnings of $3,366,000, or $0.31 and $0.30 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 1, 2007 and December 2, 2006:

2007

2006(in thousands)Earnings
 from continuing operations

$
3,405

$
3,601Loss from
 discontinued operation





(235
)Net earnings

$
3,405

$
3,366Our results
are expressed as a percentage of net sales for the six months ended December 1,
2007 and December 2, 2006 in the following table:

2007

2006Net sales


100.0
%

100.0
%Cost of
 goods sold


56.5


55.8Gross
profit


43.5


44.2Operating
 expensesSelling,
general and administrative


32.5


33.4Costs
associated with planned merger


1.4Research and
development


4.7


4.3Total operating
expenses


38.6


37.7Operating
profit


4.9


6.5Other income
 (expense)Interest
income


1.0


1.0Interest
expense


(0.2
)

(0.3
)Foreign
currency exchange gains (losses)


(0.4
)

0.7Other,
net


1.0


0.1Earnings from
continuing operations before
 income taxes


6.3


8.0Income tax
 provision


1.9


2.7Earnings from
continuing operations


4.4


5.3Loss from
 discontinued operation, net of income tax benefit





(0.3
)NET
EARNINGS


4.4
%

5.0
%-32-

Continuing Operations

Operating
profit for the current period declined by $633,000 due to increased operating
expenses of $4,042,000, including $1,067,000 in costs incurred in connection
with the planned merger with Bracco, partially offset by increased sales.

Net sales for
the six months ended December 1, 2007 increased 13%, or $8,993,000, as compared
to the six months ended December 2, 2006, due to higher sales volumes, price
increases and foreign currency exchange fluctuations, which increased the
translated amounts of foreign subsidiaries sales to U.S. dollars for financial
reporting purposes by $1,953,000. Price increases accounted for approximately
2.7% of net sales for the current period, as 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 increase
resulted primarily from increased sales of healthcare decontaminants of
$5,594,000, CT injector systems of $3,392,000, contract manufacturing products
of $1,392,000, partially offset by decreased sales of CT imaging contrast
products of $1,147,000 and X-ray fluoroscopy products of $427,000.

Net sales in
international markets, including direct exports from the U.S., increased 14%,
or $3,031,000, for the current period from the comparable prior year period due
to higher sales volumes, foreign currency exchange fluctuations, which
increased the translated amounts of foreign subsidiaries sales to U.S. dollars
for financial reporting purposes by $1,268,000, and price increases, which
accounted for approximately 1.7% of net sales in international markets for the
current period. On a product line basis, the net sales increase resulted from
increased sales of CT injector systems of $1,251,000, contract manufacturing
products of $964,000, virtual colonoscopy products of $533,000 and X-ray
fluoroscopy products of $435,000.

The following
table sets forth net sales by product category for the six months ended
December 1, 2007 and December 2, 2006:

2007

2006$

%

$

%(dollars in thousands)CT Imaging
  Contrast

$
17,271


22.5

$
18,418


27.2CT Injector
  Systems


16,893


22.1


13,501


20.0Total CT
  Imaging


34,164


44.6


31,919


47.2X-Ray
  Fluoroscopy


21,610


28.2


22,037


32.6Healthcare
  Decontaminants


6,440


8.4


846


1.3Contract
  Manufacturing


4,798


6.3


3,406


5.0Virtual
  Colonoscopy


2,869


3.7


2,588


3.8Accessory
  Medical Devices


2,574


3.4


2,679


4.0Gastroenterology


2,301


3.0


2,197


3.2Other


1,848


2.4


1,939


2.9$
76,604


100.0

$
67,611


100.0Gross profit,
expressed as a percentage of net sales, decreased to 43% for the current period
from 44% for the comparable period of the prior year due to increased costs for
finished products purchased from our Canadian subsidiary, which resulted from
the continued weakening of the U.S. dollar against the Canadian dollar,
partially offset by sales price increases.

-33-

SG&A
expenses were $24,899,000 for the six months ended December 1, 2007 compared to
$22,578,000 for the six months ended December 2, 2006. This increase of
$2,321,000, or 10%, was due to costs of $724,000 associated with an increase in
the size of our North American sales force, unfavorable foreign currency
exchange fluctuations, which increased the translated amounts of foreign
subsidiaries SG&A expenses to U.S. dollars for financial reporting
purposes by $586,000, legal fees of $523,000 incurred in the defense of the
Tyco lawsuit, which is continuing, and severance costs of $216,000.

R&D
expenditures for the current period increased 22% to $3,589,000, or 5% of net
sales, from $2,935,000, or 4% of net sales, for the comparable period of the
prior year due to increased general regulatory costs of $429,000, resulting
from our adding personnel to support planned increases in international product
registrations, and increased costs of $308,000 for CT imaging and X-ray
fluoroscopy projects. Of the R&D expenditures for the current period,
approximately 57% related to CT imaging and X-ray fluoroscopy projects, 32% to
general regulatory costs, 5% to gastroenterology projects, 1% to virtual
colonoscopy projects, 1% to healthcare decontaminant projects and 4% to other
projects.

Other income
(expense) totaled $1,159,000 of income for the current period compared to
income of $1,068,000 for the comparable period of last year. This improvement
is due primarily to gains of $669,000 from sales of non-core equity securities
and increased interest income of $136,000, partially offset by unfavorable
changes in foreign currency exchange gains and losses of $749,000, resulting
from the weakening of the U.S. dollar.

For the six
months ended December 1, 2007, our effective tax rate of 30% differed from the
Federal statutory tax rate of 34% due primarily to tax-exempt income, partially
offset by non-deductible expenses. 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.

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 statement
of earnings for the six months ended December 2, 2006 are as follows:

(in thousands)Net sales
  from unaffiliated customers


$
183Total net
  sales


$
183Loss before
  income taxes


$
(374
)Income tax
  benefit



(139
)Loss from
  discontinued operation


$
(235
)Liquidity and Capital Resources

For the
quarter ended December 1, 2007, operations and capital expenditures were funded
by working capital and proceeds from the exercise of stock options. Our policy
has generally been to fund operations and capital requirements without
incurring significant debt. At December 1, 2007 and

-34-

June 2, 2007,
we had no outstanding indebtedness for borrowed money. We have available
$2,000,000 under a bank line of credit, of which no amounts were outstanding at
December 1, 2007.

Our
contractual obligations and their effect on liquidity and cash flows as of
December 1, 2007 are set forth in the table below. We have no variable interest
entities or other off-balance sheet arrangements.

Payments
  Due By Period as of December 1, 2007Total

Less
  than
  1 year

1-3
  years

3-5
  years

More
  than
  5 years(in
  thousands)Contractual
Obligations:Operating
leases (1)


$
6,255



$
2,075



$
3,231



$
341



$
608Purchase
obligations (1)



5,090




5,066




24Employment
contract (1)



720




720Other
liabilities reflected on the consolidated balance sheetDeferred
compensation (2)



2,759




107




238




264




2,150License
arrangements



36




36Accrued
severance benefits



116




116Total


$
14,976



$
8,120



$
3,493



$
605



$
2,758(1)
The
  non-cancelable operating leases, purchase obligations, and employment
  contract are not reflected on the consolidated balance sheet under accounting
  principles generally accepted in the United States of America. The purchase
  obligations consist 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 1,
2007, approximately $44,558,000, or 31%, of our assets consisted of cash and
cash equivalents and short-term debt and equity securities. The current ratio
was 6.09 to 1, with net working capital of $91,795,000, at December 1, 2007,
compared to the current ratio of 6.07 to 1, with net working capital of
$87,044,000, at June 2, 2007. 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
quarter and six months ended December 1, 2007, 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 2, 2007. While all these significant accounting policies affect
the reporting of our financial condition and results of operations, we view
certain of these policies as critical. Policies determined to be critical are
those policies that have the most

-35-

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 1, 2007 and December 2, 2006
are as follows:

2007

2006(in thousands)Beginning balance


$
2,082



$
1,866Provision
  for rebates



15,410




12,956Rebate
  credits issued



(15,200
)



(12,564
)Ending
  balance


$
2,292



$
2,258The 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
  group purchasing organization (GPO) contracts. We do not know 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 knowledge of their ordering patterns, we estimate a
  one-week wholesale inventory level. Since most-36-

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 $1,065,000
and $1,003,000 at December 1, 2007 and June 2, 2007, 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 28% and 35% of our total accounts receivable balances at
December 1, 2007 and June 2, 2007, 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 1, 2007 and
December 2, 2006 are as follows:

2007

2006(in thousands)Beginning
balance

$
928

$
888Provision for
(reduction in) doubtful
 accounts


(18
)

46Write-offs


(28
)

(11
)Ending
balance

$
882

$
923Income Taxes

In preparing
our financial statements, income tax expense is calculated for each
jurisdiction in which we operate. This involves estimating actual current taxes
due plus assessing temporary differences arising from differing treatment for
tax and accounting purposes that are recorded as deferred tax assets and
liabilities. Deferred tax assets are periodically evaluated to determine their
recoverability, based primarily on our ability to generate

-37-

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.

As of June 3,
2007, we adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an
interpretation of FASB Statement No. 109. 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 criterion, FIN 48 requires
that the tax position be measured at the largest amount of benefit greater than
50 percent likely of being realized upon ultimate settlement. The adoption of
FIN 48 has not had a material effect on our financial condition or results of
operations.

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 1, 2007 and June 2, 2007, our reserve
for excess and obsolete inventory was $1,103,000 and $1,243,000, respectively.

Effects of Recently Issued Accounting
Pronouncements

In June 2006,
the FASB issued 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
criterion, FIN 48 requires that 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 adopted FIN 48 as of June 3, 2007. The
adoption of FIN 48 has not had a material effect 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 February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities - Including an amendment of FASB Statement No. 115.
SFAS No. 159 permits entities to choose to measure many

-38-

financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. The objective of SFAS No. 159 is to
provide opportunities to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
hedge accounting provisions. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We do not believe the adoption of SFAS No. 159 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 have been no material
changes with respect to market risk previously disclosed in our Annual Report
on Form 10-K for our 2007 fiscal year.

Foreign Currency Exchange Rate Risk

The financial
reporting of our non-U.S. subsidiaries is denominated in currencies other than
the U.S. dollar. Since the functional currency of our non-U.S. 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 1, 2007, our assets and
liabilities would increase or decrease by $5,409,000 and $683,000,
respectively, and our net sales and net earnings would increase or decrease by $4,538,000
and $498,000, 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 1, 2007, our pre-tax earnings would be favorably or unfavorably
impacted by approximately $588,000 on an annual basis.

Interest Rate Risk

Our excess
cash is invested in highly liquid, short-term, investment grade securities with
maturities of less than one year. These investments are not held for
speculative or trading purposes. Changes in interest rates may affect the
investment income we earn on cash, cash equivalents and debt securities and
therefore affect our cash flows and results of operations. As of December 1,
2007, we were exposed to interest rate change market risk with respect to our
investments in tax-free municipal bonds in the principal amount of $34,655,000.
The bonds bear interest at a floating rate established between seven and 35
days. For the six months ended December 1, 2007, 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 $347,000 on an annual basis.

-39-

As of December
1, 2007, we did not maintain any fixed or variable interest rate financing.

As of December
1, 2007, we have available $2,000,000 under a working capital bank line of
credit, of which no amounts were outstanding. 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(b) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), we conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as of December 1, 2007.
This evaluation was carried out under the supervision and with the
participation of our Chief Executive Officer and Acting 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 Acting
Chief Financial Officer concluded that our disclosure controls and procedures
are effective to provide reasonable assurance that information required to be
disclosed in the reports that we file under the Exchange Act is recorded,
processed, summarized and reported in a timely manner and is accumulated and
communicated to management, including our Chief Executive Officer and Acting
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 our fiscal
quarter ended December 1, 2007 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

-40-

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 2, 2007 and Part II, Item 1 of our Quarterly Report on Form
10-Q for the quarterly period ended September 1, 2007.

Item 1A.
Risk
 FactorsIn addition to the other information set forth in this
report, you should carefully consider the factors discussed in Part I, Item
1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended
June 2, 2007, which could materially affect our business, financial condition
and/or future results. The risks described in our Form 10-K are not the only
risks facing our company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or future results.
Except as set forth immediately below, there have been no material changes from
the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended June 2, 2007.

Our business and results of operations are likely
to be affected by our announcement of the proposed merger with Bracco.

The uncertainty about the effect of the proposed
merger with Bracco may have an adverse effect on us. These uncertainties may
impair our ability to retain and motivate key personnel until the merger is
completed, and could cause customers and others that deal with us to defer
purchases or other decisions concerning us, or to seek to change existing
business relationships with us. Current and prospective customers could be
reluctant to purchase our products or services due to uncertainty about the
direction of our product offerings and our support and service of existing
products after the merger. To the extent that our announcement of the merger
creates uncertainty among customers such that one or more customers delay purchase
decisions pending consummation of the merger, our results of operations could
be adversely affected. Finally, activities relating to the merger and related
uncertainties could divert our managements and our employees attention from
our day-to-day business, cause disruptions among our relationships with
customers and business partners, and detract us from our ability to generate
revenue and control costs. In addition, the merger agreement restricts us from
taking certain specified actions without Braccos consent until the merger is
completed. These restrictions may prevent us from pursuing attractive business
opportunities that may arise prior to the completion of the merger.

Employee retention and recruitment may be particularly
challenging during the pendency of the proposed merger, as employees and
prospective employees may experience uncertainty about their future roles with
Bracco. The departure of existing key employees or the failure of potential key
employees to accept employment with us, could have a material adverse impact on
our business, financial condition and operating results.

-41-

We may
suffer negative consequences if the proposed merger with Bracco is not
completed.

If the merger is not completed or the merger agreement
is terminated, we will be subject to a number of material risks, including:


the provision in the merger agreement which provides
 that under specified circumstances we would be required to pay to Bracco a
 termination fee of $9.0 million;
the market price of our common stock may decline to
 the extent that the current market price of such shares reflects a market
 assumption that the merger will be completed;
costs related to the merger, such as legal and
 accounting fees, must be paid even if the merger is not completed;
the diversion of management attention from our
 day-to-day business of and the unavoidable disruption to our employees during
 the period before the completion of the merger may make it difficult for us
 to regain our financial position if the merger does not occur;
if the merger agreement is terminated and our board
 of directors seeks another merger or business combination, we cannot be
 certain that we will be able to find a partner willing to pay an equivalent
 or more attractive price than the price to be paid by Bracco in the merger;
 and
employees important to our success as a stand-alone
 company may have left in anticipation of the merger.If the
conditions to our proposed merger with Bracco set forth in the merger agreement
are not met, the merger may not occur.

Several conditions must be satisfied in order to
complete the proposed merger with Bracco. These conditions are set forth in
detail in the merger agreement, which we filed with the SEC on October 30,
2007, as Exhibit 2.1 to our Current Report on Form 8-K. We cannot assure you
that each of the conditions will be satisfied. If the conditions are not
satisfied or waived, the proposed merger will not occur or will be delayed, and
we may lose some or all of the benefits of the proposed merger. If we do not
complete the proposed merger with Bracco, our board of directors may not be
able to find another partner willing to pay an equivalent or more attractive
price for another merger or business combination than that which would have
been paid in the proposed merger.

Item 2.
Unregistered Sales of Equity
 Securities and Use of ProceedsOn November 1, 2007, we issued 1,750 shares of common
stock to the Chairman of our board of directors, 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. The
shares were issued as part of the directors annual compensation in
consideration for services rendered as directors for the 12 months ended
October 31, 2007, 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.

-42-

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
30, 2007, the following persons were elected as directors of our company:

Class
I Directors: (to serve until the 2010 Annual Meeting of Stockholders)

Robert J. BeckmanPaul S. EchenbergJohn T. PrestonIn this election, 7,271,743, 7,209,740 and 7,292,545
votes were cast for Mr. Beckman, Mr. Echenberg and Mr. Preston, respectively,
and 1,905,489, 1,967,492 and 1,884,687 shares were withheld from voting for Mr.
Beckman, Mr. Echenberg and Mr. Preston, respectively.

The action of the Board of Directors in appointing
Grant Thornton LLP as our independent registered public accounting firm for our
fiscal year ending May 31, 2008 was ratified by a vote of 8,169,752 in favor,
944,491 against and 62,989 shares abstaining.

Item 5.
Other InformationNone.

Item 6.
ExhibitsNo.

Description
Page2.1

Agreement and Plan of Merger by and among Bracco
 Diagnostics, Inc., Eagle Acquisition Sub, Inc., E-Z-EM, Inc. and Bracco
 Imaging S.p.A. (for the limited purposes specified herein) dated as of
 October 30, 2007 (Certain schedules have been omitted pursuant to Item
 601(b)(2) of Regulation S-K and will be provided to the SEC upon request)
(a)3.1

Restated Certificate of Incorporation of the
 Registrant, as amended
(b)3.2

Amended and Restated By-laws of the Registrant
(c)10.1

Amended and Restated Change in Control Employment
 Security Agreement, dated as of September 24, 2007, between E-Z-EM, Inc. and
 Anthony A. Lombardo
(d)10.2

Amended and Restated Change in Control Employment
 Security Agreement, dated as of September 24, 2007, between E-Z-EM, Inc. and
 Joseph A. Cacchioli
(d)-43-

No.

Description
Page10.3

Form of Change in Control Employment Security
 Agreement for Senior Vice Presidents of E-Z-EM, Inc. dated as of September
 24, 2007
(d)10.4

Form of Indemnification Agreement, dated as of
 October 31, 2007, for directors and officers of E-Z-EM, Inc.
(e)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)
4831.2

Certification pursuant to Rule 13a-14(a)/15d-14(a)
 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Joseph
 A. Cacchioli)
5032.1

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)
5232.2

Certification pursuant to Title 18, United States
 Code, Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
 Act of 2002 (Joseph A. Cacchioli)
5399.1

Voting Agreement dated as of October 30, 2007
(f)(a)
Incorporated by reference to Exhibit 2.1 to the
 Registrants Current Report on Form 8-K filed with the Commission on October
 30, 2007.(b)
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.(c)
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.(d)
Incorporated by reference to the corresponding
 exhibit to the Registrants Current Report on Form 8-K filed with the
 Commission on September 24, 2007.(e)
Incorporated by reference to Exhibit 10.1 to the
 Registrants Current Report on Form 8-K filed with the Commission on October
 31, 2007.(f)
Incorporated by reference to Exhibit 99.2 to the
 Registrants Current Report on Form 8-K filed with the Commission on October
 30, 2007.-44-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 10, 2008
/s/ Anthony A. LombardoAnthony A. Lombardo, President,Chief Executive Officer, Director(Principal Executive Officer)Date January 10, 2008
/s/ Joseph A. CacchioliJoseph A. Cacchioli, Vice
 President -Controller and Acting Chief Financial 
 Officer (Principal Financial Officer 
 and Principal Accounting Officer)-45-

EXHIBIT INDEX

No.


Description


Page2.1

Agreement
 and Plan of Merger by and among Bracco Diagnostics, Inc., Eagle Acquisition
 Sub, Inc., E-Z-EM, Inc. and Bracco Imaging S.p.A. (for the limited purposes
 specified herein) dated as of October 30, 2007 (Certain schedules have been
 omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to
 the SEC upon request)

(a)3.1

Restated
 Certificate of Incorporation of the Registrant, as amended

(b)3.2

Amended and
 Restated By-laws of the Registrant

(c)10.1

Amended and
 Restated Change in Control Employment Security Agreement, dated as of
 September 24, 2007, between E-Z-EM, Inc. and Anthony A. Lombardo

(d)10.2

Amended and
 Restated Change in Control Employment Security Agreement, dated as of
 September 24, 2007, between E-Z-EM, Inc. and Joseph A. Cacchioli

(d)10.3

Form of
 Change in Control Employment Security Agreement for Senior Vice Presidents of
 E-Z-EM, Inc. dated as of September 24, 2007

(d)10.4

Form of
 Indemnification Agreement, dated as of October 31, 2007, for directors and
 officers of E-Z-EM, Inc.

(e)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)

4831.2

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

5032.1

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)

5232.2

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

5399.1

Voting
 Agreement dated as of October 30, 2007

(f)(a)
Incorporated
 by reference to Exhibit 2.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on October 30, 2007.(b)
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.(c)
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.-46-

(d)
Incorporated
 by reference to the corresponding exhibit to the Registrants Current Report
 on Form 8-K filed with the Commission on September 24, 2007.(e)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on October 31, 2007.(f)
Incorporated
 by reference to Exhibit 99.2 to the Registrants Current Report on Form 8-K
 filed with the Commission on October 30, 2007.-47-