UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549 FORM
10-K x ANNUAL REPORT PURSUANT
TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal
year ended June 2, 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)  Registrants telephone number, including area code
(516) 333-8230 Securities registered pursuant to Section 12(b) of the
Act: Title of each class

Name of each exchange
 on which registeredCommon
 stock, par value $.10

The
 Nasdaq Stock Market LLC Securities registered pursuant to Section 12(g) of the
Act: None Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
 No x   Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes x
No o

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x

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 oIndicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o
No x

The aggregate market value of the registrants common
stock held by non-affiliates on December 1, 2006, the last business day of the
registrants most recently completed second fiscal quarter, was approximately $129,779,000.
Such aggregate market value is computed by reference to the closing sale price
of the registrants common stock as reported on The Nasdaq Global Market tier
of The Nasdaq Stock Market LLC on such date.

As of August 1, 2007, there were 10,976,549 shares of
the registrants common stock outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the Proxy Statement for the registrants 2007 Annual Meeting of Stockholders
to be held October 30, 2007 are incorporated by reference in Part III of this
Form 10-K Report.

-2-

E-Z-EM,
Inc. and Subsidiaries

INDEX

PagePart I:Item l.
Business
4Item 1A.
Risk Factors
18Item 1B.
Unresolved Staff Comments
23Item 2.
Properties
24Item 3.
Legal Proceedings
24Item 4.
Submission of Matters to a Vote of
 Security Holders
24Part II:Item 5.
Market for Registrants Common Equity,
 Related Stockholder Matters and Issuer Purchases of Equity Securities
26Item 6.
Selected Financial Data
28Item 7.
Managements Discussion and Analysis
 of Financial Condition and Results of Operations
29Item 7A.
Quantitative and Qualitative
 Disclosures About Market Risk
41Item 8.
Financial Statements and
 Supplementary Data
42Item 9.
Changes in and Disagreements with
 Accountants on Accounting and Financial Disclosure
42Item 9A.
Controls and Procedures
43Item 9B.
Other Information
45Part III:Item 10.
Directors, Executive Officers and
 Corporate Governance
46Item 11.
Executive Compensation
46Item 12.
Security Ownership of Certain
 Beneficial Owners and Management and Related Stockholder Matters
46Item 13.
Certain Relationships and Related
 Transactions, and Director Independence
46Item 14.
Principal Accountant Fees and
 Services
46Part IV:Item 15.
Exhibits and Financial Statement
 Schedules
47-3-

Part I

Item 1.
Business(a)
General Development of BusinessOverview

E-Z-EM, Inc. 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. We
develop, manufacture and market medical diagnostic products 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. Additionally, we sell RSDLTM
- a liquid skin decontaminant that neutralizes or removes chemical warfare
agents such as Sarin or VX in seconds, leaving a non-toxic liquid that can be
washed away with water  to the U.S. and Canadian armed forces and branches of
a number of other armed forces in Europe and elsewhere. We also leverage our
capacities in manufacturing, automation and quality control by providing
contract manufacturing services to third-parties.

We have been
in business since 1961. Our global headquarters are located at 1111 Marcus
Avenue, Suite LL-26, Lake Success, N.Y. 11042.

Our company
website address is www.ezem.com1. We make available free of
charge through our website, links to our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
reports, as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC.

History

We were
founded in 1961 by Howard Stern and Phillip Meyers, M.D. to develop and market
a unit dose product for delivering barium sulfate contrast media to patients
for the X-ray visualization of the GI tract and the detection of colorectal
cancer and other GI-related diseases. The Stern-Meyers product was considered
to be a major innovation that virtually eliminated cross contamination in lower
GI examinations. The product also established E-Z-EMs brand among radiologists
around the world.

In 1983, we
reorganized in Delaware and completed an initial public offering. In 1985, we
acquired Therapex, a Canadian manufacturer of barium sulfate, creating enhanced
manufacturing capacity and providing a platform for our contract manufacturing
operations. In 1988, we founded AngioDynamics to provide medical devices for
new procedures being developed by interventional radiologists. AngioDynamics
was spun-off in a tax-free distribution to our shareholders on October 30,
2004.

Recent Developments

For fiscal
2007, our net sales increased 1%, or $757,000, to $137,840,000 due to price
increases and favorable foreign currency exchange fluctuations, partially
offset by lower sales volumes. Price increases accounted for approximately 2%
of net sales for 2007. A significant portion of our domestic

1This website address is not intended to function as a hyperlink and information on our
website is not part of this annual report on Form 10-K.

-4-

products are
sold under fixed priced, long-term group purchasing organization contracts.
Foreign currency exchange fluctuations increased the translated amounts of
foreign subsidiaries sales to U.S. dollars for financial reporting purposes by
$1,573,000. On a product line basis, our net sales increase resulted from increased
sales of CT imaging products of $5,033,000 and virtual colonoscopy products of
$1,331,000, partially offset by decreased contract manufacturing sales of
$3,146,000, healthcare decontaminant products of 2,216,000 and all other
products of $245,000.

The CT imaging
market in 2007 has been hindered by the Deficit Reduction Act of 2005 (DRA),
which took effect on January 1, 2007. The DRA effectively reduced the Medicare
and Medicaid reimbursement rates for MR, CT and PET/CT procedures performed at
outpatient imaging centers. The impact of DRA is now just being felt in the
market and 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 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 fiscal 2007.
We planned a staged market withdrawal to allow us to sell current inventory,
collect accounts receivable and sell the property in an organized fashion,
while also satisfying all outstanding liabilities.

Unless the
context requires otherwise, all references herein to a particular year are
references to our fiscal year, which concludes on the Saturday nearest to May
31st.

(b)
Financial Information About Industry SegmentsNot
 Applicable.(c)
Narrative
 Description of BusinessGeneral

We are a
leading provider of medical products that can be categorized into the following
product groupings:


CT Imaging
X-Ray Fluoroscopy
Contract Manufacturing
Virtual Colonoscopy
Accessory Medical Devices
Gastroenterology
Healthcare DecontaminantsVirtually all
of our products are cleared for sale in the United States. Certain products are
cleared for sale in the European Community and other countries.

-5-

The following
table sets forth revenues from external customers for the last three years for
each of our product categories:

2007

2006

2005$

%

$

%

$

%(dollars in thousands)CT
 Imaging Contrast

$
36,106

26.2


$
36,047

26.3


$
28,115

25.2CT
 Injector Systems


28,062

20.4



23,088

16.8



17,551

15.7Total CT
Imaging


64,168

46.6



59,135

43.1



45,666

40.9X-Ray
 Fluoroscopy


43,722

31.7



43,830

32.0



39,295

35.2Contract
 Manufacturing


9,415

6.8



12,561

9.2



9,183

8.2Virtual
 Colonoscopy


5,471

4.0



4,140

3.0



3,654

3.3Accessory
 Medical Devices


5,239

3.8



5,235

3.8



5,328

4.8Gastroenterology


4,361

3.2



5,019

3.7



4,627

4.1Healthcare
 Decontaminants


1,290

0.9



3,506

2.5



956

0.8Other


4,174

3.0



3,657

2.7



2,991

2.7$
137,840

100.0


$
137,083

100.0


$
111,700

100.0GI Disease and Colorectal Cancer

The GI system
is one of the most complex systems in the human body. It processes food,
extracts nutrients, passes wastes and involves all major body parts and organs
used in chewing, swallowing, digestion, absorption and defecation. Digestive
glands also provide moisture, lubrication, emulsification and enzymes for
digestion of proteins, carbohydrates and fats.

Diseases of
the GI tract are considered to be the second most prevalent after cardiac
diseases. According to statistics cited by the National Institute of Diabetes
and Digestive and Kidney Diseases, 60 to 70 million people in the United States
are affected by digestive diseases of all types, and in 2002, these diseases
led to more than 234,000 deaths (including deaths resulting from cancer), 14
million hospitalizations (equal to 9 percent of all hospitalizations), 6
million diagnostic and therapeutic procedures (equal to 14 percent of all procedures),
45 million physician office visits, 1.9 million people with disabilities, and
costs of $107 billion, including $85.5 billion in direct medical costs and $20
billion in indirect costs (e.g., disability and mortality). According to the
American Cancer Society, colorectal cancer is Americas third most common
cancer in both men and women, and was responsible for approximately 147,000
newly diagnosed cases and 56,000 deaths in 2006.

We believe
there are four major healthcare trends that are continuing to cause a
significant shift in spending from direct care to screening and early detection
and preventative treatment of GI disease:


Early
 Detection -
 Research has shown that colorectal cancer and other GI diseases have higher
 cure rates if caught early. As a result, the American Cancer Society
 recommends that Americans age 50 or older should be screened on a regular
 basis. In 1998, Medicare began reimbursing for colorectal cancer screening
 utilizing GI contrast X-ray examinations, as well as other GI-related
 procedures.
Aging of
 the Population -
 The number of Americans affected by GI diseases is expected to increase
 substantially as the population grows older. While colorectal cancer may
 occur at any age, more than 90% of the patients are over age 40, at which
 point the risk doubles every ten years, according to the American Society of
 Colon and Rectal Surgeons. The American Cancer Society estimates that less
 than 50% of the people age 50 or over in the United States have had a recent
 test.-6-


Technological
 Innovation - Growth
 of multi-slice CT, magnetic resonance (MR) scanners, three-dimensional and
 harmonic ultrasound, and innovations in digital imaging software are
 increasing the ability of radiologists and gastroenterologists to detect GI
 problems earlier.
Increasing
 Healthcare Costs -
 The need to reduce escalating healthcare costs for direct care is leading to
 increased use of lower-cost diagnostic procedures and minimally invasive
 preventative treatment.CT Imaging

CT scanners take
a rapid stream of X-ray images from different angles. Through computerization,
this block of data is used to create two- and three-dimensional images of bone
and hard tissue, and soft tissue when contrast media is introduced inside the
body. Radiologists typically employ oral or rectal barium sulfate contrast
media for thoracic, abdominal and pelvic studies to mark the GI tract, while
water-soluble, injectable contrast media is typically used for vascular
studies.

CT imaging is
an increasingly important technology for the diagnostic imaging of the GI
tract. Frost & Sullivan, a leading market research firm, has estimated that
CT procedures will grow at an 11.25% compound annual growth rate from 2003
through 2010. The IMV Medical Information Division estimated that 62 million CT
procedures were performed in the United States in 2006, representing a 24%
increase over their previous estimate of 50 million for 2004. IMV further
estimates that in 2006, 30% of CT exams were abdominal/pelvic procedures and
67% of exams were contrast enhanced. Of contrast enhanced exams, 28% included
injected contrast, 13% included oral contrast, and 59% included both. We are
focused on finding solutions to capitalize on these trends.

We address the
CT imaging market with what we believe is the most comprehensive line of barium
sulfate formulations for thoracic, abdominal and pelvic CT scanning. We market
11 formulations under our Readi-CAT® Smoothie, E-Z-CAT®,
and Esopho-CAT® lines. In 2005, we introduced VoLumen®, a
low-density barium sulfate suspension for use as an oral contrast in
Multi-detector CT (MDCT) and Positron Emission Tomography (PET)/CT studies.
VoLumen is designed to overcome the limitations of water and higher-density
positive oral contrasts currently used in these studies, and allows for the
simultaneous MDCT investigation of all organs, vasculature, and surrounding
structures of the abdominal/pelvic region. The entire
CT contrast line consists of formulations that are packaged as a liquid or
powder for oral use and in various sizes from unit dose to multi-dose for
administration convenience and economy. Each formulation and size is designed
to meet the radiologists need for consistent performance in lumen marking and
transit through the GI tract, while maintaining optimal patient comfort and
management.

We also
address the CT market with our Empower line of electromechanical injectors.
Radiologists use injectors to deliver a controlled volume of iodine-based
contrast media into patients to visualize the vascular structure of the
circulatory system and organs in the thoracic, abdominal and pelvic regions.
Our injectors, EmpowerCT® and EmpowerCTA®with EDATM
technology, aid in the detection of extravasation, an accidental infiltration
of contrast media into surrounding tissue. Empower injectors are comprised of
an electromechanical injector, a consumable syringe and an optional monitoring
device that utilizes a consumable extravasation patch. In November 2005, we
introduced our IRiSCTTM Injector Reporting Information System.
IRiSCT is a patent-pending software package that automates the data collection
process for all critical functions of EmpowerCT and Empower CTA injectors.
IRiSCT also

-7-

links all
Empower injectors in a department across the hospitals existing data network,
including those in remote locations, creating an integrated data management
system that automatically captures operational data, including contrast flow
rate and volume, peak pressure and pressure history, injection protocol details
and contrast consumption. When used to network all injector systems in a
facility, IRiSCT consolidates data from an entire radiology department that
hospital administrators can access from their offices.

In fiscal
2007, we also received 510(k) clearance from the Food and Drug Administration
(FDA) for EmpowerMRTM injector system - our first product for the
magnetic resonance (MR) imaging market. EmpowerMR has the same easy-to-use
interface and robust safety features as the other products in our Empower
injector line. EmpowerMR also employs several innovative features designed to
cope with the problem of electrical interference in the magnetic field of the
MR scanner. With the launch of EmpowerMRTM, we also introduced
IRiSMRTM, which provides the same data collection and connectivity
capabilities for the MR suite. We believe that our IRiS software solutions
represent a significant improvement over traditional injector technology
applications, and provide us with a competitive advantage.

In conjunction
with Nova Biomedical, we are also developing EZ CHEMTM, an
easy-to-use hand held device for use in the CT suite in performing a simple
blood test for assessing kidney function. EZ CHEM will also have wireless
connectivity to the IRiS software  a combination we expect will provide
enhanced contrast and patient management. EZ CHEM is in the final stages of
development, and we expect to introduce the product in the first half of fiscal
2008.

Sales of CT
imaging products first surpassed those of our X-ray fluoroscopy products in
2005, and these products now represent our largest product group. Based upon
sales in 2007, we believe that we are the leading manufacturer of oral CT
barium contrast media and the second largest manufacturer of CT injectors in
the United States.

X-Ray Fluoroscopy

GI X-ray
contrast media has been our principal business since our founding in 1961. A
standard X-ray takes a photograph of bones (hard tissue). When contrast media
is introduced inside the body, the X-ray can also photograph soft tissue
details. For more than 85 years, barium sulfate has been the contrast medium of
choice for virtually all X-rays of the GI tract and is still one of the most
common methods used by radiologists for diagnostic imaging of the GI tract. It
permits the visualization of the entire GI tract; has a high absorption
coefficient for X-rays; and it is biologically inert, insoluble in water and
chemically stable.

We believe we
offer the most comprehensive line of barium sulfate formulations for
fluoroscopy in the United States. We market approximately 30 fluoroscopy
formulations. Formulations focus on five key areas of the GI tract - pharynx,
esophagus, stomach, small intestine and large intestine (colon) - and are
packaged in different sizes in oral, enema, liquid and powder forms. Each
formulation is designed to meet the radiologists need to optimize
visualization of the condition under diagnosis while also providing patient
comfort and dosing compliance. Based on sales figures for 2007, we believe that
we are the leading worldwide manufacturer of these contrast media.

We have an
ongoing program to develop new formulations, to extend the GI diagnostic power
of X-ray fluoroscopy and to enhance the effectiveness of our existing
formulations. In recent years, we introduced Varibar®, the first

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family of
barium sulfate contrast for the X-ray diagnosis of dysphagia, or swallowing
disorders. Varibar provides a range of viscosity barium suspensions from juice
to honey to pudding to evaluate a patients ability to swallow liquid and solid
materials of differing viscosities and volumes, resulting in consistent,
repeatable radiographic results. We estimate 10 million Americans have some
degree of swallowing disorder.

We also sell
accessory medical devices for use in X-ray procedures, such as empty enema
administration kits and components.

Contract Manufacturing

We provide
contract manufacturing services primarily in three product areas:


Diagnostic
 Contrast Media - We
 manufacture an oral iodinated contrast medium for a third party.
Pharmaceuticals - This includes products for dermatology,
 sunscreen lotions and creams, cough and cold medicines, and oral antibiotics.
Cosmetics - This includes anti-aging and moisturizer
 skin care products, as well as topical liquids.Virtual Colonoscopy

Virtual
colonoscopy (VC), or CT colonography, employs a CT scanner and
three-dimensional imaging software to examine the colon (and surrounding tissue
and organs) for screening and diagnostic purposes without having to insert a
long fiber optic tube (optical colonoscopy) into the colon or having to fill
the colon with liquid barium sulfate (barium enema). We support the virtual
colonoscopy marketplace with a comprehensive suite of products:


PROTOCO2LTM
 is an automated insufflation system that delivers carbon dioxide into the
 colon to achieve optimal distention for better visualization and greater
 patient comfort;
Tagitol VTM is
 a next generation radiopaque marker that blends into stool as it forms.
 Tagitol V provides immediate, visible identification of retained feces via
 comparative density analysis, enhancing the accurate detection of pathology
 and helping to reduce the potential for false positive/negative results;
NutraPrepTM is
 a patented, pre-packaged, low-residue patient food system that provides a
 nutritionally sound diet for the day prior to an exam while minimizing the
 amount of retained fecal material.
LoSo PrepTM is
 a relatively mild, low sodium, colon cleanser. LoSo Prep and other E-Z-EM
 laxative products are marketed to radiologists and gastroenterologists for
 the preparation and increased compliance of patients for any medical
 procedure requiring a clean colon, including X-ray examinations (barium
 enema), virtual or optical colonoscopy or surgery; and
InnerviewGITM
 is a software application that processes CT scan data to create two- and
 three-dimensional views of the GI tract. InnerviewGI was jointly developed
 with Vital Images, Inc., a company that develops, markets and supports
 three-dimensional medical imaging software for use primarily in disease
 screening, clinical diagnosis and surgical and therapy planning. Vital Images
 markets InnerviewGI and pays a royalty to us based on sales. We share the
 cost of InnerviewGI product development with Vital Images.-9-

We believe our
products help virtual colonoscopy be perceived as a more patient-friendly
procedure than either optical colonoscopy or barium enema examinations. We
believe that patients, when given the choice, prefer virtual colonoscopy
because it is less invasive than optical colonoscopy, does not require sedation
(which generally requires missing a day of work) and is more comfortable than
both optical colonoscopy and barium enema without compromising visualization.
Virtual colonoscopy is gaining academic and clinical acceptance. Medicare reimbursement continues to expand and
improve for diagnostic VC for failed optical colonoscopy and other specific
conditions. In addition, some private insurers are now reimbursing for
diagnostic VC for failed optical colonoscopy and other specific conditions. The
reimbursement conditions vary from state to state as do the reimbursement
amounts. We expect that Federal reimbursement for screening VC in the United
States will depend heavily on a favorable outcome of the ACRIN II trial, a
multi-center trial that began in 2005. Results from this study are expected to
be published by the end of calendar 2007.

Accessory Medical Devices

We develop,
manufacture and market consumable and non-consumable radiological medical
devices, such as entry biopsy needles and trays, mammography wipes and related
accessories.

Gastroenterology

We are
leveraging our core competency in GI imaging to expand on our presence in the
gastroenterology market. Our product offerings to this market include the
Suction Polyp TrapTM, E-Z-GuardTM mouthpieces, Visipace
electrogastrogram analyzer, as well as other medical devices. We also market
several virtual colonoscopy products, including the LoSo PrepTM
bowel cleanser and the NutraPrepTM pre-procedure meal plan, to
gastroenterologists for use in optical colonoscopy procedures, and distribute a
hydrogen breath analyzer under the E-Z-EM trade name H2 ScoreTMBreath
Meter. H2 Score is a convenient hand-held screening tool for lactose
malabsorption. In 2006, we launched our CO2EFFICIENTTM
Endoscopic Insufflator, a new device for insufflating the upper and lower
gastrointestinal tract with carbon dioxide (CO2) gas. Based on our
popular PROTOCO2LTM device for CT Colonography, CO2EFFICIENT
provides a quick and easy way to adapt the use of CO2 gas
insufflation to procedures such as colonoscopy, endoscopic retrograde
cholangiopancreatography (ERCP), and enteroscopy. We believe that the product
represents a means of improving both patient comfort and efficiency in endoscopy,
and that we are well positioned to continue building our presence in this
market.

Healthcare Decontaminants

Our product
offering is RSDLTM skin decontaminant, a patented, broad-spectrum
decontaminant designed for individual use to remove or neutralize various
chemical warfare agents such as nerve and mustard gas. RSDL neutralizes or
removes these agents within a matter of seconds or minutes, leaving a non-toxic
residue that can be washed off. In March 2007, the U.S. Department of Defense (DoD) determined
that RSDL had satisfied all final configuration testing criteria, and
was approved for initial procurements by the individual service branches. The
decision, known as Milestone C, cleared the way for deployment of RSDL to
war-fighters as the DoDs next generation skin decontaminant for protection
against chemical warfare agents. The U.S. Army Space & Missile Defense
Command (USASMD) followed up in April 2007 by placing the DoDs first order for
the product: a $5.07 million order for both RSDL and the inert training variant
we also manufacture. RSDL is also currently used by all service branches of the
Canadian armed forces, as well as certain branches of

-10-

the armed
forces of Australia, Belgium, Ireland, Holland, New Zealand, Sweden and
Slovenia. In September 2006, RSDL received Department of Homeland Security
(DHS) SAFETY Act Designation and Certification as a Qualified Anti-Terrorism
Technology, which extends certain liability protections to us and our suppliers
and customers (whether public or private) in the event RSDL is used in response
to a terrorist incident. RSDL was originally developed and patented by Defence Research
and Development Canada, an agency within the Canadian Department of
National Defence, for use by the Canadian Forces. We produce
RSDL under a license with Defence Research and Development
Canada (DRDC) for the worldwide military, first-responder and
first-receiver markets. RSDL is also patented in the United States and more
than a dozen European countries.

Other

Revenues from
our Other product category totaled 3.0%, 2.7% and 2.7% of net sales in 2007,
2006 and 2005, respectively. This category consists primarily of freight
charges billed to customers, miscellaneous products distributed through our
foreign operations and royalty income.

Research and Development and Engineering

We believe
that the success of our business is substantially dependent upon our ability to
improve our existing products and develop new diagnostic contrast formulations
and devices for different imaging modalities and procedures. To support these
activities, we operate a 7-person Research and Development (R&D)
department and a 12-person product Engineering department.


The R&D laboratory (in
 Montreal, Canada) specializes in liquid and powder barium sulfate contrast
 formulations. Capabilities include the ability to evaluate barium sulfate
 particle size and concentration for optimal imaging characteristics,
 suspension stabilization, coating or non-coating properties depending on the
 application, flavoring modification, and expertise in analytic, organic and
 physical chemistry, including colloidal suspensions.
The Engineering department
 (in Westbury, N.Y.) specializes in FDA Class 2 Medical Device development,
 manufacturing and regulation for hardware and disposables. Capabilities
 include mechanical, electrical and software design.We have a product steering
committee that reviews and evaluates new product ideas. We also have a product
development project management process that incorporates all disciplines,
including sales and marketing, to ensure that we accurately address our
markets needs. This team approach is responsible for developing new projects
under all applicable design control validation procedures throughout the
various stages of product development. These procedures include bench testing,
animal testing, biocompatibility testing, human-use testing conducted by
independent physicians, and post-initial test-market surveillance of product
performance. The feedback we receive throughout the process, especially from
physicians, is used to confirm product functionality, safety and effectiveness
before commencing full-scale marketing.

We conduct clinical research
studies to support our product development activities and to evaluate
post-market performance, particularly in comparison to competitive products in
the market. We manage and monitor the clinical studies performed by
investigators and institutions to study the clinical outcomes of our products.
In addition to offering administrative support and funding, our clinical
applications team assists investigators in writing protocols and collecting and
analyzing data when necessary.

-11-

At the annual meeting of the
Radiological Society of North America (RSNA) in November 2005, we
demonstrated a new blood analyzer as a work-in-progress to be marketed under
the trade name EZ CHEMTM. EZ CHEM is a convenient point-of-care
device for conducting blood assays in the CT suite prior to performing certain
imaging procedures. We are developing the product in conjunction with Nova
Biomedical (Nova), and have the exclusive right to market the product to
radiologists and gastroenterologists in North America, with additional
marketing rights worldwide. In May 2007, Nova received FDA clearance for its
StatSensorTM blood analyzer - the base technology for EZ CHEM. We
are in the process of completing all requisite steps necessary to commercialize
EZ CHEM and we expect to launch the product in the first half of fiscal 2008.

Our research
and development (R&D) expenditures totaled $5,671,000, $5,979,000, and
$5,493,000 in 2007, 2006 and 2005, respectively. As a percentage of sales, our
R&D expenditures were 4.1%, 4.4% and 4.9% in 2007, 2006 and 2005,
respectively. We expect R&D expenditures to continue at or exceed these
levels.

Sales and Marketing

We believe
that the success of our business is also dependent upon the effectiveness of
our sales, marketing and distribution efforts.

In North
America, our products are marketed through a 48-person sales force (including six
regional managers), some of whom began their careers as X-ray or CT
technologists or had other specialized training before joining our company. The
sales force calls on the 1,500 major hospitals in North America at which
approximately 25,000 radiologists and an increasing number of
gastroenterologists maintain their practices.

We promote our
products at major medical conventions worldwide. We also advertise in select
medical journals and trade publications, conduct direct mail campaigns and
sponsor websites, such as the virtual colonoscopy community of AuntMinnie.com,
and sponsor continuing medical education seminars in virtual colonoscopy to
reach our target markets. In 2006, we supported 13 seminars in virtual
colonoscopy, which were attended by over 300 physicians in the United States
and Europe. Our seminars typically last for two days and consist of lectures
and hands-on training sessions focused on performing and interpreting virtual
colonoscopy examinations. We offer a marketing program for virtual
colonoscopy, through which physicians can receive comprehensive marketing
support materials for use in promoting their practices.

We sell our
products in the United States through a network of approximately 150 distributors.

Outside North
America, our products are marketed through a 16-person sales force. We market
and distribute directly in the United Kingdom and Benelux (the economic union
of Belgium, the Netherlands and Luxembourg), reaching major hospitals in these
markets. We use independent distributors in other markets, such as GE
Healthcare in Central and Eastern Europe, Bracco Diagnostics, Inc. in Italy,
and Initios Medical in Scandinavia. Significant sales are made in the United
Kingdom, Benelux, Australia, Italy, Sweden, Germany, South Africa, France and
South Korea. Foreign distributors generally receive exclusive distribution
rights, where permissible under applicable law, and some hold governmental
product registrations in their names. We file new registrations in our name
when permissible under applicable law.

In fiscal
2007, we completed the wind-down of our subsidiary in Tokyo, Japan and exited
this market.

-12-

Competition

We believe
that our CT and X-ray fluoroscopy contrast products are the most widely used
diagnostic imaging products of their kind in the United States, Canada and
certain European countries. We face competition in the domestic contrast
systems market primarily from Mallinckrodt, a division of Covidien Ltd.
(formerly Tyco Healthcare), GE Healthcare, a segment of General Electric Co.,
and Bracco. Significant competition exists outside of the United States and
some of our other distributors also compete with us. We compete primarily on
the basis of product quality, customer service, and the availability of a full
line of barium sulfate formulations tailored to user needs, while maintaining
competitive pricing.

The CT and
X-ray fluoroscopy procedures for which we provide products compete with, as
well as complement, more invasive procedures such as colonoscopy and endoscopy.
These latter two procedures involve direct visual inspection of the GI tract by
a gastroenterologist using a flexible video instrument inserted into the
patient. The use of gastroenterology procedures has been growing in both upper
and lower GI examinations, as patients have been increasingly referred to
gastroenterologists rather than radiologists. Also, the availability of drugs
that successfully treat ulcers and other GI disorders has tended to reduce the
need for upper GI tract X-ray examinations.

We also
compete in the highly competitive medical device radiology market. To our
knowledge, no single company, domestic or foreign, competes with us across all
of our medical device product lines. In electromechanical injectors and
syringes, our main competitors are Medrad, a division of Schering AG, and
Liebel-Flarsheim, a division of Covidien Ltd. In needles and trays, we compete
with C.R. Bard, Inc., Baxter Healthcare Corporation, Sherwood Medical Co., as
well as other competitors. We also encounter competition for our other medical
device products.

Significant Customer

Sales of
products to Merry X-Ray Corporation, our largest distributor in the United
States, represented 33% of our total net sales for 2007.

Backlog

At July 31,
2007, we had a backlog of unfilled customer orders of $10,046,000, including
the $5.07 million RSDL order from the DoD, compared to a backlog of $3,061,000
at July 31, 2006. The backlog figures represent sales less estimated rebates.
We expect all backlog at July 31, 2007 will be filled during 2008. The changes
in backlog are not necessarily indicative of comparable variations in sales or
earnings.

Raw Materials and Supplies

Most barium
sulfate used in our X-ray fluoroscopy and CT imaging products is supplied by
manufacturers in Europe and the United States. E-Z-EM Canada Inc., our wholly
owned subsidiary, which operates a barium sulfate mine and processing facility
in Nova Scotia and whose reserves we anticipate will last a minimum of five
years at current usage rates, provides the balance. We believe that these
sources should be adequate for our foreseeable needs.

We have
generally been able to obtain adequate supplies of all raw materials and
components for our business in a timely manner from existing sources. However,
the inability to develop alternative sources, if required, a reduction

-13-

or
interruption in supply, or a significant increase in the price of components,
could adversely affect our operations.

Patents and Trademarks

We believe
that our success is dependent, in part, on patent protection and the
proprietary nature of our technology. We file and prosecute patent applications
for our technology in jurisdictions where we believe that patent protection is
effective and advisable, generally in the United States, European Union and
other appropriate jurisdictions.

The patent
positions of pharmaceutical and medical device companies, including our
company, are uncertain and involve complex and evolving legal and factual
questions. The coverage sought in a patent application can be denied or
significantly reduced either before or after the patent is issued.
Consequently, there can be no assurance that any of our pending or future
patent applications will result in an issued patent. There is also no assurance
that any existing or future patent will provide significant protection or
commercial advantage, or whether any existing or future patent will prevent or
limit a third party from obtaining a new patent, thus requiring us to obtain a
license to produce and sell the product. Generally, patent applications can be
maintained in secrecy for at least 18 months after their earliest priority
date. In addition, publication of discoveries in the scientific or patent
literature often lags behind actual discoveries. Therefore, we cannot be certain
that we were the first to invent the subject matter covered by each of our
pending United States patent applications or the first to file non-U.S. patent
applications for such subject matter.

If a third
party files a patent application relating to an invention claimed in our patent
application, we may be required to participate in an interference proceeding
declared by the U.S. Patent and Trademark Office to determine who owns the
patent. Such proceeding could involve substantial uncertainties and cost, even
if the eventual outcome is favorable to us. There can be no assurance that our
patents, if issued, would be upheld as valid in court.

Third parties
may claim that our products infringe on their patents and other intellectual
property rights. The pharmaceutical and medical device industries are highly
competitive, and companies in these areas may have large patent portfolios.
Some companies in the medical device industry have used intellectual property
infringement litigation to gain a competitive advantage. If a competitor were
to challenge our patents, licenses or other intellectual property rights, or
assert that our products infringe its patent or other intellectual property
rights, we could incur substantial litigation costs, be forced to stop selling
our products and/or make expensive changes to our product designs, license
rights in order to continue manufacturing and selling our products, or pay
substantial damages. Third-party infringement claims, regardless of their
outcome, would not only consume our financial resources but also divert our
managements time and effort. Such claims could also cause our customers or
potential customers to defer or limit their purchase or use of the affected
products until resolution of the claim. We are a defendant in a pending patent
infringement action. See Item 3 - Legal Proceedings in this annual report.

We may find it
necessary to initiate litigation to enforce our patent rights or to protect our
trade secrets or know-how. Patent litigation can be costly and time consuming,
and there can be no assurances that our litigation expenses will not be
significant in the future or that the outcome of any litigation will be
favorable to us.

-14-

We rely on
trade secret protection for certain unpatented aspects of other proprietary
technology. There can be no assurance that others will not independently
develop or otherwise acquire substantially equivalent proprietary information
or techniques or gain access to our proprietary technology or disclose such
technology, or that we can meaningfully protect our trade secrets. We require
key employees and consultants to execute confidentiality agreements upon the
commencement of an employment or consulting relationship with us. These
agreements also require our employees and, generally, our consultants to assign
to us all rights to any inventions made or conceived during their employment
with or engagement by us. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for us in
the event of unauthorized use, transfer or disclosure of our confidential
information or inventions.

We believe
that a trademark can help establish brand recognition and awareness for our
company and our products. We file and prosecute trademark applications in
jurisdictions in which we believe that registered trademark protection is
effective and advisable. We have registered numerous trademarks in the United
States and certain foreign jurisdictions. Because the registration of
trademarks in the United States and foreign countries can be expensive, we also
rely on common law protection for certain trademarks.

The laws of
foreign countries generally do not protect our proprietary rights to the same
extent as under U.S. law. In addition, we may experience more difficulty
enforcing our proprietary rights in certain foreign jurisdictions.

Government Regulation

The products we manufacture and market are subject to regulation by the
U.S. Food and Drug Administration, or FDA, and, in some instances, state
authorities and foreign governments.

U.S. Regulation

In the United States, before a pharmaceutical or medical device product
can be introduced into the market, a manufacturer must, depending on the
product, either register the product with the FDA or obtain clearance or
approval from the FDA.

We manufacture and market both pharmaceutical products and medical
devices. Our pharmaceutical products, such as contrast agents used in X-ray
fluoroscopy and CT imaging procedures, are registered with the FDA. Our medical
devices have been cleared and approved by the FDA.

The FDA
clearance and approval processes for pharmaceuticals and medical devices are
expensive, uncertain and lengthy, and a number of products for which approval
or clearance has been sought by other companies have never been approved for
marketing. There can be no assurance that we will be able to obtain necessary
regulatory clearances or approvals for any future products on a timely basis or
at all. Delays in receipt of or failure to receive such clearances or
approvals, the loss of previously received clearances or approvals, or the
failure to comply with existing or future regulatory requirements could have a
material adverse effect on our business, financial condition and results of
operations.

If and when
FDA marketing clearance or approval is granted for a drug or device, the
product and its manufacture are subject to pervasive and continuing regulation
by the FDA, including Current Good Manufacturing Practices (CGMP), record
keeping requirements and the MedWatch and Medical Device Reporting

-15-

regulation,
which requires that manufacturers report to the FDA if their drug or device may
have caused or contributed to a death or serious injury or malfunctioned in a
way that would likely cause or contribute to a death or serious injury if it
were to recur. The labeling and promotion activities with respect to products
are subject to scrutiny by the FDA and, in certain instances, by the Federal
Trade Commission. The FDA actively enforces regulations prohibiting marketing
of drugs and devices for unapproved new indications or uses.

The products
we manufacture are subject to the FDAs Quality System Regulations. Drug and
device manufacturers are required to register and list their facilities with the
FDA and certain state agencies. Every phase of production, including raw
materials, components and subassemblies, manufacturing, testing, quality
control, labeling, traceability after distribution, and follow-up and reporting
of complaint information is governed by FDA regulations. The FDA periodically
conducts inspections of manufacturing facilities and, if there are alleged
violations, the operator of a facility must correct them or satisfactorily
demonstrate the absence of the violations or face regulatory action.

We are subject
to inspection and marketing surveillance by the FDA to determine our compliance
with regulatory requirements. Non-compliance with applicable FDA requirements
can result in, among other things, fines, injunctions, civil penalties, recall
or seizure of products, total or partial suspension of production, failure of
the FDA to grant marketing approvals, withdrawal of marketing approvals, a
recommendation by the FDA to disallow us to enter into government contracts,
and criminal prosecutions. The FDA also has the authority to request repair,
replacement or refund of the cost of any device manufactured or distributed by
us.

We believe that we are in compliance, in all material respects, with
all applicable FDA regulatory requirements for our products.

Non-U.S. Regulation

Our products
have been registered and approved in each foreign country where such
registration and approval is required to market and sell our products. Some of
the regulatory requirements in foreign countries are similar to those in the
United States for product approval and maintenance of such approval. However,
the regulatory review process may vary greatly from country to country.

In some cases,
we rely on our non-U.S. distributors to obtain registration and approval for
our products in a particular foreign jurisdiction.

Non-U.S. sales
of pharmaceuticals and medical devices manufactured in the United States that
are not approved or cleared by the FDA for use in the United States, or are
banned or deviate from lawful performance standards, are subject to FDA export
requirements. Before exporting such products to a foreign country, we must
first comply with the FDAs regulatory procedures.

We believe that we are in compliance, in all material respects, with
all applicable regulatory requirements in those countries where our products
are sold.

Other

We are subject
to various Federal and state laws governing our relationships with the
physicians and others who purchase or make referrals for our products.

-16-

For instance,
Federal law prohibits payments of any kind that are intended to induce a
referral for any item payable under Medicare, Medicaid or any other Federal
healthcare program. Many states have similar laws. There can be no assurance
that we will not be required to incur significant costs to comply with such
laws and regulations now or in the future or that such laws or regulations will
not have a material adverse effect on our ability to do business.

In January
2005, we received International Standards Organization (ISO) 9001:2000 and
13485:2003 certifications of our facility in Montreal, Canada. Our facility in
Westbury, NY is also certified as compliant with these standards.

Environmental and Other Regulations

We and our
products are also subject to a variety of state and local laws in those
jurisdictions where our products are or will be marketed (for example, we are
registered with the New York State Board of Pharmacy), and Federal, state and
local laws relating to matters such as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. These include laws, rules,
regulations and policies governing the use, generation, manufacture, storage,
air emissions, effluent discharge, handling and disposal of certain hazardous
and potentially hazardous substances used in connection with our operations.
Although we believe that we have complied with these laws and regulations in
all material respects and to date have not been required to take any action to
correct any noncompliance, there can be no assurance that we will not be
required to incur significant costs to comply with environmental and other
regulations in the future.

We operate a
facility situated within a broad industrial area located in Nassau County, New
York, which has been designated by New York State as a Superfund site. This
industrial area has been listed as an inactive hazardous waste site due to
ground water investigations conducted on Long Island during the 1980s. Due to
the large area of the designated site, the potential number of responsible
parties, and the lack of information concerning the degree of contamination and
potential clean-up costs, it is not possible to estimate what, if any,
liability we may have. Further, it has not been alleged that we contributed to
the contamination, and it is our belief that we have not done so.

Employees

As of June 2,
2007, we employed 590 persons, 167 of whom were covered by various collective
bargaining agreements. Collective bargaining agreements covering 24 and 141
employees expire in December 2008 and December 2010, respectively. A third
collective bargaining agreement, covering two employees, automatically renews
every May. We consider our employee relations to be satisfactory.

(d)
Financial Information Regarding Foreign and Domestic Operations and
 Export SalesWe derived
about 32% of our sales for 2007 from customers outside the United States.
Profit margins on export sales are somewhat lower than domestic sales margins.
Our domestic operations bill third-party export sales primarily in U.S. dollars
and, therefore, do not incur foreign currency transaction gains or losses.
Third-party sales made by our subsidiaries in Canada, the United Kingdom and
Holland to local customers are billed in their local currency.

-17-

As of June 2,
2007, 368 of our employees were involved in the developing, manufacturing and
marketing of our products outside of the United States. Of this amount, 286
employees were based at our Canadian subsidiary supporting most of our
worldwide manufacturing requirements. Our product lines are marketed through
approximately 125 foreign distributors to customers in 84 countries outside of
the United States.

The net sales
of each geographic area for our last three fiscal years and the long-lived
assets attributable to each geographic area are set forth in Note R to our
Consolidated Financial Statements included elsewhere in this annual report on
Form 10-K, which information is incorporated by reference into this Item 1 (d).

Item 1A.
Risk FactorsIn addition to the other
information set forth in this report, you should carefully consider the factors
discussed below that could materially affect our business, financial condition
and/or future results. The risks described below 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.

Some of our
competitors have agreements with large group purchasing organizations, which
have caused us to charge lower prices for some products and that may result in
our losing sales in the future.

Some of our
competitors have, and may in the future enter into other, agreements with large
group purchasing organizations (GPOs), which are groups of hospitals and
other large healthcare providers formed to combine their members purchasing
power. Under these agreements, the members of a GPO are obligated to fulfill
their requirements for the products covered by the agreement exclusively from
the contract supplier. In the past, some of these GPOs have not strictly
enforced this obligation 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.

Our complete reliance on our Canadian
manufacturing facility to produce substantially all of our CT and X-ray
fluoroscopy barium sulfate formulation products may impair our ability to
respond to natural disasters or other adverse events.

A natural disaster or other event could
result in losses at our Canadian manufacturing facility that exceed the amount
of our insurance coverage. Additionally, replacing or repairing our Canadian
facility and certain manufacturing equipment would be difficult and could
entail substantial replacement lead-time and expense. Further, if we were
unable to adequately supply our core products to our customers for even a
relatively short time, we could lose market share to our competitors.

We are exposed to foreign currency exchange
risks.

Since we are a multinational corporation that
sells products and sources products in many different countries, changes in
exchange rate could adversely affect our results of operations. For example, we
use Canadian dollars to purchase virtually all of our X-ray and CT barium
sulfate formulation products

-18-

from our Canadian subsidiary for sale in the
United States and for export outside of the United States. Consequently, we are
exposed to the effects of changes in the Canadian dollar  U.S. dollar exchange
rate. For further discussion regarding our
currency risks refer to Item 7A.  Quantitative and Qualitative Disclosures
About Market Risk  Foreign Currency Exchange Rate Risk.

We currently purchase significant amounts of finished
products, product components and raw materials from several single-source
suppliers.

We depend on
several single and limited source suppliers for significant amounts of
specialized medical devices, product components and the chemicals used in our
contrast media formulations. We may experience an interruption of supply if a
supplier is unable or unwilling to meet our time, quantity and quality
requirements. There are relatively few alternative suppliers for some of these
devices, components and chemicals. Any or all of these suppliers could
discontinue manufacturing or supplying these products and components,
experience interruptions in their operations, or raise their prices. We may not
be able to identify and integrate alternative sources of supply in a timely
fashion or at all. Any transition to alternate suppliers may result in
production delays and increased costs and limit our ability to deliver products
to our customers. Furthermore, if we are unable to identify alternative sources
of supply, we would have to modify our products to use substitute components,
which may cause delays in shipments, increased design and manufacturing costs,
increased prices for our products and lost product sales.

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

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

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

Third parties
may claim that our products infringe on their patents and other intellectual
property rights. Identifying third-party patent rights can be particularly
difficult because, in general, patent applications can be maintained in secrecy
for at least 18 months after their earliest priority date. Some companies in
the medical device industry have used intellectual property infringement
litigation to gain a competitive advantage. If a competitor were to challenge
our patents, licenses or other intellectual property rights, or assert that our
products infringe its patents or other intellectual property rights, we could
incur substantial litigation costs, be forced to stop selling products and/or
make expensive changes to our product designs, license rights in order to
continue manufacturing and selling our products, or pay substantial damages.
Third-party infringement claims, regardless of their outcome, would not only
consume our financial resources but also divert our managements time and
effort. Such claims could also cause our customers or potential customers to
purchase competitors products or defer or limit their purchase or use of our
affected products until resolution of the claim.

-19-

On June 20,
2007, Tyco Healthcare Group L.P. and two related parties filed a patent
infringement action against us. See Item 3 - Legal Proceedings. If the
plaintiffs are successful in this action against us, it could have a material
adverse effect on our business.

One distributor accounted for approximately
33% of our net sales in 2007, which exposes us to a concentration of credit
risk.

In November 2005, our second largest U.S. distributor acquired our
largest U.S. distributor and, in 2007, the combined entity was responsible for
approximately 33% of our worldwide sales. This exposes us to a greater degree
of credit risk concentration than we had experienced previously. The cost of
healthcare has risen significantly over the past decade. Numerous initiatives
and reforms initiated by legislators, regulators and third-party payors to curb
these costs have led to a consolidation trend in the healthcare industry,
including the consolidation of distributors of pharmaceuticals and medical
devices. We expect that this trend will continue which could further increase
risk from credit concentration.

The market potential for our RSDL skin
decontaminant product is uncertain, and sales in this market are subject to
complex governmental procedures.

The market
potential for our RSDL skin decontaminant (RSDL) is subject to a number of
uncertainties. One factor is the nature of the military and first-responder
procurement process itself  an unpredictable and lengthy bureaucratic process
that often requires rigorous testing and product modifications before
substantial orders are placed. Working with governmental agencies often involves
several layers of administration, which can greatly reduce the speed of funding
and increase the complexity of the procurement process itself, thus affecting
the timing and amount of sales. Another factor related to U.S. government sales
is the uncertainty of Congress continued funding approval of U.S. government
contracts. Congress usually appropriates funds for a given program each fiscal
year. Consequently, at the beginning of a major program, the contract is
usually partially funded, and additional monies are normally committed to the
contract only if Congress makes appropriations for future fiscal years. A third
factor is the uncertainty surrounding the manner and extent to which RSDL will
be deployed among the military and first-responder personnel. A fourth factor
is the difficulty in quantifying the extent of the civilian emergency service
organization market for RSDL. A fifth factor is the nature of government
contracts, which often permit the government to unilaterally cancel or change
individual orders, terminate the contract, audit our contract-related
operations and control and potentially prohibit the export of the product.
These and other factors may have an adverse effect on our RSDL sales in the
future.

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

The market for
our products is characterized by rapid technological change, new and improved
product introductions, changes in customer requirements and evolving industry
standards. To be successful, we must develop and commercialize new products and
enhanced versions of our existing products. Our products are technologically
complex and require significant planning, design, development and testing
before they may be marketed. This process generally takes at least nine to 18
months and may take up to several years. Our success in developing and
commercializing new versions of our products is affected by our ability to:


timely and accurately
 identify new market trends;-20-


accurately assess customer
 needs;
minimize the time and
 costs required to obtain regulatory clearance or approval;
adopt competitive pricing;
timely manufacture and
 deliver products;
accurately predict and
 control costs associated with the development, manufacturing and support of
 our products; and
anticipate and compete
 effectively with our competitors efforts.Market
acceptance of our products depends in part on our ability to demonstrate that
our products are cost-effective and easier to use, as well as offer
technological advantages. Additionally, we may experience design,
manufacturing, marketing or other difficulties that could delay or prevent our
development, introduction or marketing of new versions of our products. As a
result of such difficulties and delays, our development expenses may increase
and, as a consequence, our results of operations could suffer.

If we fail to adequately protect our
intellectual property rights, our business may suffer.

Our success
depends in part on obtaining, maintaining and enforcing our patents, trademarks
and other intellectual property rights, and our ability to avoid infringing the
proprietary rights of others. We rely upon patent, trade secret, copyright,
know-how and trademark laws, as well as license agreements and contractual
provisions, to establish our intellectual property rights and protect our
products. These measures may not adequately protect our intellectual property
rights.

Our patents
may not provide commercially meaningful protection, as competitors may be able
to design around our patents to produce alternative, non-infringing designs.
Additionally, we may not be able to effectively protect our rights in unpatented
technology, trade secrets and confidential information. Although we require our
new employees, consultants and corporate partners to execute confidentiality
agreements, these agreements may not provide effective protection of our
information or, in the event of unauthorized use or disclosure, may not provide
adequate remedies.

The adoption rate of virtual colonoscopy as a
screening modality for colon cancer continues to be slower than we anticipated
and its future adoption is largely dependent on obtaining insurance
reimbursement for screening.

Our growth
strategy involves investing a portion of our financial, management and other
resources in proprietary products for, and further development of, the virtual
colonoscopy market. To date, the adoption rate of virtual colonoscopy as a
screening modality for colon cancer has been slower than we anticipated. We
believe this is principally due to the present lack of private and public
reimbursement standards for virtual colonoscopy screening. Additionally, the
American Cancer Society (ACS) has not yet included virtual colonoscopy in its
published screening guidelines for colon cancer, believing the evidence of its
efficacy is insufficient at this time. The American College of Radiology
Imaging Network has recently completed the National CT Colonograph Trial, also
known as the ACRIN II Study, a 15-center, 2,500-patient trial endorsed by the
ACS, whose goal is to determine if virtual colonoscopy is as effective as
optical colonoscopy. We expect the results of the study to be published by the
end of calendar of 2007. Although we believe that a favorable

-21-

outcome in
this study is pivotal to obtaining reimbursement for virtual colonoscopy
screening in the United States, there is no assurance that the outcome will be
favorable. Together, these and other factors contribute to the uncertainty
surrounding the evolution of the virtual colonoscopy market.

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

Our products
are subject to extensive regulation in the United States and in foreign
countries where they are sold. Unless an exemption applies, each medical device
or product that we wish to market in the United States must receive either
510(k) clearance or premarket approval from the FDA before the product can be
sold. Either process can be lengthy and expensive. The FDAs 510(k) clearance
procedure, also known as premarket notification, is the process used for our
current products. This process usually takes from three to 12 months from the
date the application is submitted to, and filed with, the FDA, but may take
significantly longer. Additionally, 510(k) clearances may be revoked by the FDA
if safety or effectiveness problems develop with the products. The premarket
approval process is much more costly, lengthy and uncertain. It generally takes
from one to three years from the date the application is submitted to, and
filed with, the FDA, and may take even longer. Achieving premarket approval may
require numerous clinical trials and filing numerous amendments to the
application. Regulatory regimes in other countries also require approval or
clearance prior to marketing or selling medical devices and products in those
countries. If we are unable to obtain additional clearances or approvals needed
to market existing or new products in the United States or elsewhere, or obtain
these clearances or approvals in a timely fashion, our revenues and
profitability may decline.

Inadequate levels of reimbursement or failure
to obtain reimbursement from governmental or other third-party payors for
procedures using our products may cause our revenues to decline or limit our
ability to introduce new products or new applications for existing products.

Third-party
payors have adopted, and are continuing to adopt, a number of healthcare
policies intended to curb rising healthcare costs. These policies include:


controls on
 government-funded reimbursement for healthcare services and price controls on
 medical products and service providers;
challenges to the pricing
 of medical procedures or limits or prohibitions on reimbursement for specific
 devices and therapies through other means; and
the introduction of
 managed care systems in which healthcare providers contract to provide
 comprehensive healthcare for a fixed cost per person.In November
2006, the Centers for Medicare & Medicaid Services (CMS) announced 2007
reimbursement rates for U.S. healthcare providers treating Medicare and
Medicaid patients and also implemented various provisions of the Deficit
Reduction Act of 2005 related to medical imaging procedures that affect our
industry. CMS reimbursement rates now factor in a Sustainable Growth Rate
(SGR) cut, which requires a 5% reduction in physician payments as determined
by the SGR formula. A new CMS rule, effective January 1, 2007, caps payment
rates for imaging services provided outside of hospital outpatient departments
at the same amount paid under the physician fee schedule for such services
performed in hospital outpatient departments. The new rule also establishes a
policy of reducing by 25% the payment for the technical component of multiple

-22-

imaging
procedures on contiguous body parts. While the long-term impact of these
factors on our business is unclear, they have created uncertainty in the
marketplace and, we believe, adversely affected the purchases of imaging
capital equipment, at least in the short-term. We believe some hospitals and
imaging centers have delayed plans to expand or upgrade their imaging services
to newer CT imaging technology in order to further assess the economic impact
of these factors on their businesses. There is risk that these factors may
inhibit the growth of radiology procedures that utilize our existing or future
products and have an adverse effect on our future sales and results of
operations.

We are unable
to predict whether further Federal, state or local healthcare reform
legislation or regulation affecting our business may be proposed or enacted in
the future, or what effect any such legislation or regulation would have on our
business. Numerous healthcare reforms have been considered that would result in
major reforms in the United States and foreign healthcare systems that could
have an adverse effect on our business.

In response to higher
healthcare costs, governmental and third-party payors are demanding ever higher
levels of evidence of clinical efficacy and cost effectiveness in order to
provide coverage for new procedures.

Governmental
and private third-party payors are requiring increasing levels of evidence of
clinical efficacy and cost effectiveness as a prerequisite to covering new
technologies and new applications for existing technologies. To the extent that
the use of our current or future products is not described by existing Current
Procedural Terminology (CPT) codes or covered under existing third-party
coverage policies, reimbursement for these applications may not be attained or
may be significantly delayed.

Outside of the
United States, reimbursement systems vary significantly by country. Many
foreign markets have government-managed healthcare systems that prescribe
reimbursement rates for new devices and procedures. These systems are subject
to the same pressures to curb rising healthcare costs and control healthcare
expenditures as those in the United States. If adequate levels of reimbursement
from third-party payors outside of the United States are not obtained, sales of
our products outside of the United States may decrease, and we may fail to
achieve or maintain significant non-U.S. sales.

If our spin-off of AngioDynamics were
determined to be taxable, it could result in a potentially significant expense,
which would diminish our financial resources.

On October 30,
2004, we effected a spin-off to our stockholders of all of the AngioDynamics
common stock we owned. We received a private letter ruling from the U.S.
Internal Revenue Service (IRS) to the effect that the distribution would be
tax-free to us and to our stockholders for U.S. Federal income tax purposes.
Although private letter rulings are generally binding on the IRS, we will not
be able to rely on the ruling if any of the factual representations or
assumptions we made to obtain the ruling are, or become, incorrect or untrue in
any material respect. If the IRS subsequently holds our spin-off to be taxable,
the above favorable tax treatment would not apply, and both E-Z-EM and our
stockholders could be subject to tax. These liabilities could be substantial.

Item 1B.
Unresolved Staff CommentsNone.

-23-

Item 2.
PropertiesOur global headquarters, located in Lake Success, New
York, consist of leased offices aggregating 27,632 square feet. We also lease a
70,800 square-foot manufacturing, warehousing and office facility located in
Westbury, New York. We also occupy manufacturing, warehousing and office
facilities located in Montreal, Canada, consisting of two buildings, of which
we own one and lease the other, containing an aggregate of 140,544 square feet.
We also own a 29,120 square-foot building in Debert, Nova Scotia, and both own
and lease land encompassing our barium sulfate mining operation in Nova Scotia.

Item 3.
Legal ProceedingsOn June 20, 2007, an action was filed against us
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
alleges that we have infringed and are 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 our
Empower CT® and Empower CTA® injectors. The complaint alleges our actions have
caused, and will continue to cause, the plaintiffs to suffer substantial damage
and irreparable injury. The complaint seeks to prohibit us from continuing to
market and sell these products and asks for compensatory and treble money
damages, reasonable attorneys fees, costs and pre-judgment interest. While we
do not have to respond to the complaint until late August, and the parties have
not recommended discovery, we believe that we have valid defenses to the
infringement claims, including invalidity of certain claims of the 710 patent,
and intend to defend the matter vigorously.

We are party to other claims, legal actions and
complaints that arise in the ordinary course of our business. We believe 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
our financial position or results of operations.

Item 4.
Submission of Matters to a Vote of
  Security HoldersNone.

Executive
Officers of the Company

The following table sets forth certain information
with respect to our executive officers. All executive officers are elected
annually and serve at the pleasure of the board of directors.

Name

Age

PositionsAnthony A. Lombardo

60

President, Chief Executive Officer, DirectorPeter J. Graham

41

Senior Vice
  President  Chief Legal Officer, Global Human Resources and SecretaryJeffrey S. Peacock

50

Senior Vice
  President - Global Scientific, Technical and Manufacturing OperationsBrad S. Schreck

50

Senior Vice President - Global Sales, Marketing and
  EngineeringJoseph A. Cacchioli

51

Vice President  Controller and Acting Chief
  Financial Officer-24-

Mr. Lombardo has served as our President, Chief
Executive Officer and a director since 2000. Prior to joining us, he served as
President of ALI Imaging Systems, Inc. (radiology information management) from
1998 to 2000.

Mr. Graham has served as our Senior Vice President 
Chief Legal Officer, Global Human Resources and Secretary since 2005, and as our
Vice President - General Counsel and Secretary from 2001 until 2005. He has
been an employee of ours since 1997.

Mr. Peacock has served as our Senior Vice President 
Global Scientific, Technical and Manufacturing Operations since 2005.
Previously, he served as our Senior Vice President - Global Scientific and
Technical Operations from 2002 until 2005, and as our Vice President -
Scientific and Technical Operations from 2000 to 2002. Mr. Peacock has been an
employee of ours since 1986.

Mr. Schreck has served as our Senior Vice President 
Sales, Marketing and Engineering since May 2006. Previously, he served as our
Senior Vice President  Global Marketing, Engineering and International Sales
from 2005 until May 2006, and as our Senior Vice President - Global Marketing
from 2002 to 2005. Before joining us, he served as a consultant for Vyteris,
Inc. (pharmaceutical/drug delivery) and ACMI, Inc. (urology, gynecology,
laproscopy) from 2000 to 2002.

Mr. Cacchioli has served as our Vice President 
Controller and Acting Chief Financial Officer since May 2007, and as our Vice
President - Controller from 1988 to May 2007. He has been an employee of ours
since 1984.

-25-

Part II

Item 5.
Market for Registrants Common
  Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded on The Nasdaq Global Market
tier of The Nasdaq Stock Market LLC (and prior to July 1, 2006, on the Nasdaq
National Market) under the symbol EZEM. The following table sets forth, for
the periods indicated, the high and low sales prices of our common stock as
reported by The Nasdaq National Market (through June 30, 2006) and The Nasdaq
Global Market tier of The Nasdaq Stock Market LLC (from July 1, 2006 through
June 2, 2007).

Sales PricesHigh

LowFifty-two weeks ended June 2, 2007Fourth Quarter

$
17.65

$
14.75Third Quarter


18.74


15.01Second Quarter


17.84


13.57First Quarter


17.00


11.62Fifty-three weeks ended June 3,
  2006Fourth Quarter

$
22.93

$
15.00Third Quarter


26.59


19.38Second Quarter


20.97


13.30First Quarter


15.62


13.30Holders
of Record

As of August 1, 2007, there were 357 registered holders
of our common stock. This number of registered holders does not represent the
actual number of beneficial owners of shares of our common stock because shares
are frequently held in street name by securities dealers and others for the
benefit of individual owners who have the right to vote their shares.

Dividends

During the first quarter of 2005, the Board of
Directors declared a cash dividend on our common stock at the rate of $.30 per
share. During 2006 and 2007, no dividends were declared. We will continue to
evaluate our dividend policy on an ongoing basis. Any future dividends are
subject to our Board of Directors review of operations and financial and other
conditions then prevailing.

Issuer
Purchases of Equity Securities

In March 2003, our 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 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.

-26-

Performance
Graph

The graph below matches the cumulative 5-year total
return of holders of E-Z-EM, Inc.s common stock with the cumulative total
returns of the NASDAQ Composite index, the Dow Jones Wilshire Medical Supplies
index, and the NASDAQ Medical Equipment index. The graph assumes that the value
of the investment in E-Z-EMs common stock, and in each index (including
reinvestment of dividends) was $100 on 5/31/2002 and tracks it through
5/31/2007. For this illustration, the spin-off of AngioDynamics in October 2004
is being treated as a dividend.

COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*Among E-Z-EM, Inc., The NASDAQ Composite Index,
The NASDAQ Medical Equipment Index And The Dow Jones Wilshire Medical Supplies
Index

(LINE GRAPH)

* $100 invested on 5/31/02 in stock or
 index-including reinvestment of dividends. Fiscal year ending May 31.Total
Return  Data Summary

Cumulative
 Total Return5/02

5/03

5/04

5/05

5/06

5/07E-Z-EM, Inc.

100.00

76.36

175.09

498.86

522.24

578.32Nasdaq Composite

100.00

98.31

123.42

129.37

141.08

172.42Nasdaq Medical Equipment

100.00

98.60

145.37

158.53

167.20

197.77DJ Wilshire Medical Supplies

100.00

91.25

109.01

129.62

129.27

168.67The stock price performance included in this graph is
not necessarily indicative of future stock price performance.

The information under the heading Performance Graph
shall not be deemed filed for purposes of Section 18 of the Securities Exchange
Act of 1934 or incorporated by reference in any filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934.

-27-

Item 6.
Selected Financial DataYou should read the following selected financial data
in conjunction with our consolidated financial statements and the related notes
and Managements Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this report. The consolidated statements of
earnings data for the fifty-two weeks ended June 2, 2007, the fifty-three weeks
ended June 3, 2006 and the fifty-two weeks ended May 28, 2005, and the
consolidated balance sheet data as of June 2, 2007 and June 3, 2006, are
derived from our audited consolidated financial statements that are included
elsewhere in this report. The consolidated statements of earnings data for the
fifty-two weeks ended May 29, 2004 and May 31, 2003, and the consolidated
balance sheet data as of May 28, 2005, May 29, 2004 and May 31, 2003, are
derived from our audited consolidated financial statements not included in the
report. Historical results are not necessarily indicative of the results of
operations to be expected for future periods. See Note A
of Notes to Consolidated Financial Statements for a description of the method that we used
to compute our historical basic and diluted earnings per common share.

Fifty-two
 weeks ended
 June 2,
 2007

Fifty-three
 weeks ended
 June 3,
 2006*Fifty-two weeks endedMay 28,
 2005*

May 29,
 2004*

May 31,
 2003*(in thousands, except per share data)Income statement
data:Net sales

$
137,840

$
137,083

$
111,700

$
98,869

$
93,936Gross profit


61,194


59,107


47,340


39,349


37,248Operating profit


11,264


11,123


3,648


2,579


1,053Earnings from
 continuing operations before income taxes


12,554


11,462


6,688


6,006


2,333Earnings from
 continuing operations


8,562


8,055


5,848


4,064


1,908Net earnings


8,543


9,766


6,936


6,726


2,741Earnings from
 continuing operations per common shareBasic


.78


.74


.54


.39


.19Diluted


.77


.73


.53


.38


.18Earnings per
 common shareBasic


.78


.90


.64


.65


.27Diluted


.77


.88


.63


.63


.26Cash dividends
 declared per common share


.00


.00


.30


.25


.00Weighted average
 common sharesBasic


10,925


10,849


10,762


10,344


10,048Diluted


11,131


11,106


10,951


10,625


10,419June 2,
 2007

June 3,
 2006*

May 28,
 2005*

May 29,
 2004*

May 31,
 2003*(in thousands )Balance sheet
 data:Working capital

$
87,044

$
77,061

$
59,612

$
88,636

$
60,123Cash, cash
 equivalents and short-term debt and equity securities


44,200


40,195


28,542


24,252


16,144Total assets


134,942


123,792


105,648


142,536


110,624Long-term debt,
 less current maturities








31


85


65Stockholders
 equity


114,037


101,842


85,720


111,775


88,602-28-

*
Reclassified to reflect
 the discontinued operations described in Note B to the Consolidated Financial
 Statements included herein.Item 7.
Managements Discussion and
 Analysis of Financial Condition and Results of OperationsThe following information
should be read together with the audited consolidated financial statements and
the notes thereto and other information included elsewhere in this Annual
Report on Form 10-K.

Forward-Looking
Statements

Our disclosure and
analysis in this report, including but not limited to the information discussed
in Item 1. Business and in this Item 7, 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 this Form 10-K. You are advised to consult
any further disclosures we make on related subjects in our Forms 10-Q, 8-K and
10-K reports to the Securities and Exchange Commission. Although we have
attempted to provide a list of important factors that may affect our business,
investors are cautioned that other factors may prove to be important in the
future and could affect our operating results. You should understand that it is
not possible to predict or identify all such factors or to assess the impact of
each factor or combination of factors on our business. Consequently, you should
not consider any such list to be a complete set of all potential risks or
uncertainties.

Overview

We are a leading provider of medical diagnostic
contrast agents and devices used in the diagnosis of abdominal disease. Our
customers include radiologists, gastroenterologists and speech language
pathologists. We are

-29-

focused on becoming a worldwide CT solutions company
for the computed tomography (CT) market. This focus is driven by the trend away
from older fluoroscopic procedures (e.g., barium enema) to CT-based
applications for imaging the 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 allows enhanced images from CT and CT
Angiography applications utilizing Multi-detector CT technology. We also
manufacture and market a line of CT power injectors that deliver injectable CT
contrast agents.

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 than in the past. 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.

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 April
2005, we purchased from our strategic partner, ODell Engineering, all its
assets related to the RSDL technology. We now have exclusive, worldwide rights
to the RSDL technology for the military and first-responder markets. Prior to
the acquisition, we were the exclusive manufacturer of RSDL under an agreement
between ODell Engineering and our Canadian subsidiary. In March 2007, the U.S. Department of Defense (DoD)
determined that RSDL had satisfied all final configuration testing
criteria, and was approved for initial procurements by the individual service
branches. The decision, known as Milestone C, cleared the way for deployment of
RSDL to war-fighters 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. At the DoDs request, we are currently storing RSDL product at our
facilities, with a sales value of approximately $3.5 million, relating to this
initial order. The DoD inspected and formally accepted this product in May 2007
and paid for this product in July 2007. The product is currently pending
physical delivery, which we expect to occur in our 2008 fiscal year, at which
time we will recognize the revenue from this transaction.

Japanese Discontinued Operation

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

-30-

the first quarter of 2007. We planned a staged market
withdrawal to allow us to sell current inventory, collect accounts receivable
and sell the property in an organized fashion, while also satisfying all
outstanding liabilities. For all periods presented, Toho is accounted for as a
discontinued operation in our financial statements in accordance with SFAS No.
144, Accounting for Impairment and Disposal of Long-Lived Assets.

AngioDynamics Initial Public Offering

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

AngioDynamics Spin-off

In February 2004, we received a favorable private
letter ruling from the Internal Revenue Service regarding the tax-free
treatment of the distribution of our remaining ownership in AngioDynamics. On
October 30, 2004, we made a tax-free, pro rata distribution of our 9,200,000
shares of AngioDynamics common stock to our shareholders of record as of
October 11, 2004 (the Record Date). Based on the shares outstanding of each
company on the Record Date, our shareholders received .856377 of a share of
AngioDynamics stock for each share of E-Z-EM stock they owned on the Record
Date. For all periods presented, AngioDynamics is accounted for as a
discontinued operation in our financial statements in accordance with SFAS No.
144, Accounting for Impairment and Disposal of Long-Lived Assets.

Results
of Operations

Our fiscal year ended June 2, 2007 represents
fifty-two weeks, our fiscal year ended June 3, 2006 represents fifty-three
weeks and our fiscal year ended May 28, 2005 represents fifty-two weeks.

Consolidated
Results of Operations

We reported net earnings of $8,543,000, or $.78 and
$.77 per common share on a basic and diluted basis, respectively, for 2007, as
compared to net earnings of $9,766,000, or $.90 and $.88 per common share on a
basic and diluted basis, respectively, for 2006, and net earnings of
$6,936,000, or $.64 and $.63 per common share on a basic and diluted basis,
respectively, for 2005. Results for 2006 included a tax benefit of $2,481,000,
or $.23 per basic share, associated with the closing of our Japanese
subsidiary. This tax benefit is included in earnings from discontinued
operations. Our 2006 results also included: i) a $1,205,000 gain on the sale of
our former manufacturing facility in Westbury, N.Y., and ii) the reversal of a
tax valuation allowance of $456,000, or $.04 per basic share, relating to a
previously impaired, non-core equity security. Our 2005 results were favorably
affected by gains of $3,270,000, or $.30 per basic share, on the sales of
non-core equity securities.

-31-

The following table sets forth earnings from
continuing operations and earnings from discontinued operations for the last
three fiscal years:

2007

2006

2005(in thousands)Earnings from continuing operations

$
8,562

$
8,055

$
5,848Earnings (loss) from discontinued operations


(19
)

1,711


1,088Net earnings

$
8,543

$
9,766

$
6,936Our results for the last three fiscal years are
expressed as a percentage of net sales in the following table:

2007

2006

2005Net sales


100.0
%

100.0
%

100.0
%Cost of goods
 sold


55.6


56.9


57.6Gross
profit


44.4


43.1


42.4Operating
 expensesSelling,
general and administrative


32.1


31.4


31.6Plant closings
and operational restructuring costs





0.1


2.6Gain on sale of
real property





(0.9
)Research and
development


4.1


4.4


4.9Total operating
expenses


36.2


35.0


39.1Operating
profit


8.2


8.1


3.3Other income
 (expense)Interest
income


1.0


0.6


0.3Interest
expense


(0.2
)

(0.3
)

(0.3
)Foreign
currency exchange losses


(0.0
)

(0.3
)

(0.0
)Other,
net


0.1


0.3


2.7Earnings from
continuing operations before income taxes


9.1


8.4


6.0Income tax
 provision


2.9


2.5


0.8Earnings from
continuing operations


6.2


5.9


5.2Earnings (loss)
 from discontinued operations, net of income tax provision (benefit)


(0.0
)

1.2


1.0NET
EARNINGS


6.2
%

7.1
%

6.2
%Continuing Operations

Operating profit for 2007 increased by $141,000 due to
increased sales and improved gross profit, partially offset by increased
operating expenses. Operating expenses for 2006 were reduced due to the
recognition of a $1,205,000 gain on the sale of our former manufacturing
facility in Westbury, N.Y. This sale was the culmination of the plan to
relocate our powder-based barium production from Westbury to our manufacturing
facility in Montreal, Canada.

-32-

Operating profit for 2006 improved by $7,475,000 due
to increased sales and improved gross profit, partially offset by increased
operating expenses. Results for 2006 included the aforementioned gain of
$1,205,000 on the sale of our former manufacturing facility in Westbury, N.Y.

The 2006 and 2005 results included pre-tax plant
closing and operational restructuring costs of $105,000 ($.01 per basic share)
and $2,917,000 ($.18 per basic share), respectively, incurred in moving our
powder-based barium production to our manufacturing facility in Montreal,
Canada. The project has been completed and all barium manufacturing activities
are now centralized in our ISO certified Montreal facility.

Net sales increased 1%, or $757,000, to $137,840,000
for 2007, and 23%, or $25,383,000, to $137,083,000 for 2006. The increase for
2007 was due to price increases and favorable foreign currency exchange
fluctuations, partially offset by lower sales volumes. Price increases
accounted for approximately 2% of net sales for 2007. A significant portion of
our domestic products are sold under fixed priced, long-term group purchasing
organization contracts. Foreign currency exchange fluctuations increased the
translated amounts of foreign subsidiaries sales to U.S. dollars for financial
reporting purposes by $1,573,000. On a product line basis, the 2007 net sales
increase resulted from increased sales of CT imaging products of $5,033,000 and
virtual colonoscopy products of $1,331,000, substantially offset by decreased
contract manufacturing sales of $3,146,000, healthcare decontaminant products
of $2,216,000 and all other products of $245,000. The increase for 2006 was due
to organic sales growth, the recall by Mallinckrodt of its liquid barium
product, an additional week in 2006 compared to 2005, and price increases. The
Mallinckrodt recall resulted in net sales increases in both the CT imaging and
X-ray fluoroscopy product categories. Price increases accounted for
approximately 21⁄2% of net sales for 2006. On a product line basis, the net sales
increase for 2006 resulted from increased sales of CT imaging contrast
products, particularly our CT Smoothie lines, and CT injector systems, totaling
$13,469,000, X-ray fluoroscopy products of $4,535,000, contract manufacturing
products of $3,378,000, healthcare decontaminant products of $2,550,000, and
all other products of $1,451,000.

The CT imaging market in 2007 has been hindered by the
Deficit Reduction Act of 2005 (DRA), which took effect on January 1, 2007. The
DRA effectively reduced the Medicare and Medicaid reimbursement rates for MR,
CT and PET/CT procedures performed at outpatient imaging centers. The impact of
DRA is now just being felt in the market and 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 our third and fourth fiscal quarters.

Net sales in international markets, including direct
exports from the United States, were basically unchanged for 2007, and
increased by 17%, or $6,488,000, to $44,162,000 for 2006. For 2007, lower sales
volumes virtually offset the effects of price increases and favorable foreign
currency exchange fluctuations, which increased the translated amounts of
foreign subsidiaries sales to U.S. dollars for financial reporting purposes by
$1,456,000. Price increases accounted for approximately 2% of net international
sales for 2007. On a product line basis, decreased sales of contract
manufacturing products of $4,249,000 and healthcare decontaminant products of
$2,023,000 virtually offset increased sales of CT imaging products of
$2,902,000, virtual colonoscopy products of $1,485,000, X-ray fluoroscopy
products of $1,224,000 and all other products of $679,000. For 2006, the
increase was due to increased sales of healthcare decontaminants of $2,496,000,
CT imaging products of $1,027,000, X-ray fluoroscopy products of $962,000,
contract manufacturing products of $923,000, virtual colonoscopy products of
$744,000, and all other products of

-33-

$336,000. Price increases accounted for slightly less
than 1% of net sales in international markets for 2006.

The following table sets forth net sales by product
category for the last three fiscal years:

2007

2006

2005$

%

$

%

$

%(dollars in thousands)CT
 Imaging Contrast

$
36,106


26.2

$
36,047


26.3

$
28,115


25.2CT
 Injector Systems


28,062


20.4


23,088


16.8


17,551


15.7Total CT
Imaging


64,168


46.6


59,135


43.1


45,666


40.9X-Ray
 Fluoroscopy


43,722


31.7


43,830


32.0


39,295


35.2Contract
 Manufacturing


9,415


6.8


12,561


9.2


9,183


8.2Virtual
 Colonoscopy


5,471


4.0


4,140


3.0


3,654


3.3Accessory
 Medical Devices


5,239


3.8


5,235


3.8


5,328


4.8Gastroenterology


4,361


3.2


5,019


3.7


4,627


4.1Healthcare
 Decontaminants


1,290


0.9


3,506


2.5


956


0.8Other


4,174


3.0


3,657


2.7


2,991


2.7$
137,840


100.0

$
137,083


100.0

$
111,700


100.0Gross profit expressed as a percentage of net sales
was 44% for 2007, as compared to 43% for 2006 and 42% for 2005. The percentage
improvement in 2007 was due to sales price increases, partially offset by
increased costs for purchased finished products and increased materials cost
primarily from our barium sulfate suppliers. Finished product costs increased
primarily due to the weakening of the U.S. dollar against the Canadian dollar,
which increased the cost of finished goods we purchased from our Canadian
subsidiary. The percentage improvement in 2006 was due to favorable changes in
sales product mix and sales price increases, including the effects of lower
distributor rebates as a percentage of sales, partially offset by increased
materials cost primarily from our barium sulfate suppliers and increased costs
associated with purchased finished products. Favorable changes in sales product
mix can be attributed, in part, to the increased sales resulting from the
Mallinckrodt recall. Finished product costs increased primarily due to the
weakening of the U.S. dollar against the Canadian dollar, which increased the
cost of finished goods we purchased from our Canadian subsidiary.

Selling, general and administrative (SG&A)
expenses were $44,259,000 for 2007, $43,105,000 for 2006 and $35,282,000 for
2005. The increase in 2007 of $1,154,000, or 3%, was due to costs of $1,679,000
incurred in expanding 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 $598,000, and increased severance costs of $250,000, partially
offset by decreased incentive award compensation. The increase in 2006 of
$7,823,000, or 22%, was due, in large part, to: (i) increased compensation
costs, including fringe benefits, of $2,632,000, due in part to an increase in
the size of our workforce; (ii) additional infrastructure expenses of
$2,372,000 to support our healthcare decontaminants business; and (iii)
increased selling expenses relating to the increase in net sales.

Research and development (R&D) expenditures for
2007 totaled $5,671,000, or 4% of net sales, as compared to $5,979,000, or 4%
of net sales, for 2006, and $5,493,000, or 5% of net sales, for 2005. The
decrease in 2007 of $308,000 was due to the reversal of accrued expenses
resulting from the termination of an R&D cost-sharing project. The increase
in 2006 of $486,000 was due primarily to increased costs of $988,000 for CT
imaging and X-ray fluoroscopy projects and increased general regulatory costs
of $102,000, partially offset by decreases in spending of $316,000 for virtual
colonoscopy projects and $271,000 for gastroenterology projects. Of the R&D
expenditures for 2007, approximately 52% related to CT imaging and X-ray
fluoroscopy projects, 30% to general regulatory costs, 7% to gastroenterology
projects, 4% to virtual colonoscopy

-34-

projects and 7% to other projects. R&D
expenditures are expected to be 5% of net sales for the upcoming fiscal year.
In addition to our in-house efforts, we are presently sponsoring various
independent R&D projects and are committed to continued expansion of our
product lines through R&D.

Other income, net of other expenses, totaled
$1,290,000 for 2007, compared to $339,000 for 2006 and $3,040,000 for 2005. The
increase in 2007 of $951,000 was due to increased interest income of $593,000,
resulting from increased funds available for investment and higher interest
rates, and reduced foreign currency exchange losses of $449,000. The decrease
in 2006 of $2,701,000 was due primarily to a decline in gains on the sale of
non-core equity securities totaling $3,170,000.

Note J to our Consolidated Financial Statements
included in this report details the major elements affecting income taxes for
2007, 2006 and 2005. For 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 2006, our effective tax rate of 30%
differed from the Federal statutory tax rate of 34% due primarily to the
reversal of a valuation allowance of $456,000 for a previously impaired,
non-core equity security, since, at that time, it was more likely than not that
such benefit would be realized. For 2005, our effective tax rate of 13%
differed from the Federal statutory tax rate of 34% due primarily to the
reversal of valuation allowances for a previously impaired, non-core equity
security sold in 2005 and losses of a U.S. subsidiary that operated in Puerto
Rico, partially offset by non-deductible expenses, including stock option
compensation costs of $377,000.

Discontinued Operations

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 earnings
(loss) from discontinued operations in the accompanying consolidated statements
of earnings for 2007, 2006 and 2005 are as follows:

2007

2006

2005(in thousands)Net salesFrom
unaffiliated customers

$
81

$
1,286

$
1,375Total net sales

$
81

$
1,286

$
1,375Loss before
 income taxes

$
(47
)
$
(760
)
$
(129
)Income tax
 provision (benefit)


(28
)

(2,471
)

11Earnings (loss)
 from discontinued operation

$
(19
)
$
1,711

$
(140
)The results for the
discontinued operation for 2007 represent two months of operational activity
and, therefore, are not comparable to the results for 2006 and 2005.

We have also consolidated the financial statements of AngioDynamics and
reported its results as a discontinued operation in an amount equal to our
percentage of equity ownership through October 30, 2004, the date on which our
spin-off of AngioDynamics was completed. Since the spin-off occurred in the
second quarter of 2005, the results for the discontinued operation were
excluded from the accompanying consolidated statements of earnings for 2007 and
2006.

-35-

Summarized results of operations for AngioDynamics, including minority
interest, as reported in earnings from discontinued operations in the
accompanying consolidated statements of earnings for 2005 are as follows:

(in thousands
)Net salesFrom unaffiliated
customers


$
22,342From affiliates



420Total net sales


$
22,762Earnings before income
taxes


$
2,628Income tax provision



1,103Earnings before minority
interest



1,525Minority interest



297Earnings from discontinued
operation


$
1,228Liquidity and Capital Resources

For 2007, operations and capital expenditures were funded by working
capital and proceeds from the exercise of stock options. For 2006, operations
and capital expenditures were funded by working capital and proceeds from the
sale of assets. For 2005, operations, the purchase of intangible assets,
capital expenditures and cash dividends were funded by working capital, cash
reserves and the repayment of intercompany debt by AngioDynamics from the
proceeds of its public offering. Our policy has generally been to fund
operations and capital requirements without incurring significant debt. At June
2, 2007, we maintained no debt (notes payable, current maturities of long-term
debt and long-term debt). Comparatively, we maintained debt of $31,000 at June
3, 2006. We have $1,885,000 available under a bank line of credit, of which no
amounts were outstanding at June 2, 2007.

Our contractual obligations and their effect on liquidity and cash
flows as of June 2, 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 June 2, 2007Total

Less than 
 1 year

1-3years

3-5 years

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


$
6,863



$
1,977



$
3,685



$
535



$
666Purchase obligations
(1)



4,484




4,335




149Employment contract
(1)



720




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



2,748




86




208




246




2,208License
arrangements



36




36Accrued
severance benefits



474




474Total


$
15,325



$
7,628



$
4,042



$
781



$
2,874(1)
The non-cancelable operating leases, purchase obligations, and
 employment contract are not reflected on the consolidated balance sheet under-36-

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 June 2, 2007, approximately $44,200,000, or 33%, of our assets
consisted of cash and cash equivalents and short-term debt and equity
securities. The current ratio was 6.07 to 1, with net working capital of
$87,044,000, at June 2, 2007, compared to the current ratio of 5.21 to 1, with
net working capital of $77,061,000, at June 3, 2006. The increase in net
working capital resulted primarily from our earnings from continuing
operations. We believe that our cash reserves, cash provided from continuing
operations and existing bank line of credit will provide sufficient liquidity
to meet our cash requirements for the next 12 months.

Net capital expenditures, primarily for machinery and equipment, were
$6,680,000 for 2007, compared to $1,742,000 for 2006 and $4,154,000 for 2005.
Of the 2007 expenditures, approximately $3,503,000 related to information
technology hardware and software expenditures primarily for our planned upgrade
to an enterprise resource planning (ERP) platform worldwide. Of the 2005 expenditures,
approximately $775,000 related to the moving of our powder-based barium
production to our manufacturing facility in Montreal, Canada. The aggregate
level of capital expenditures for 2008 is currently expected to approximate
2007 levels.

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 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.

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

Critical Accounting Policies

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

We believe that given current facts and circumstances, it is unlikely
that applying any other reasonable judgment or estimate methodologies would
cause a material effect on our consolidated results of operations, financial
condition 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

-37-

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 fifty-two weeks ended June 2,
2007 and fifty-three weeks ended June 3, 2006 are as follows:

2007

2006(in thousands)Beginning balance

$
1,866

$
1,397Provision for rebates


26,858


25,855Rebate credits issued


(26,642
)

(25,386
)Ending balance

$
2,082

$
1,866The 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 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 $1,003,000 and $688,000 at June 2, 2007 and June 3, 2006,
respectively. Service costs are expensed as incurred.

-38-

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 35% and 39% of our total
accounts receivable balances at June 2, 2007 and June 3, 2006, respectively,
were concentrated in one distributor. While the accounts receivable related to
this distributor are significant, we do not believe the credit risk to be
significant given the distributors consistent payment history.

Changes in our allowance for doubtful accounts for the fifty-two weeks
ended June 2, 2007 and fifty-three weeks ended June 3, 2006 are as follows:

2007

2006(in thousands)Beginning balance

$
888

$
837Provision for doubtful
accounts


83


78Write-offs


(43
)

(27
)Ending balance

$
928

$
888Income Taxes

In preparing our financial statements, income tax expense is calculated
for each jurisdiction in which we operate. This involves estimating actual
current taxes due plus assessing temporary differences arising from differing
treatment for tax and accounting purposes that are recorded as deferred tax
assets and liabilities. Deferred tax assets are periodically evaluated to
determine their recoverability, based primarily on our ability to generate
future taxable income. Where their recovery is not likely, we establish a
valuation allowance and record a corresponding additional tax expense in our
statement of earnings. If actual results differ from our estimates due to
changes in assumptions, the provision for income taxes could be materially
affected. At June 2, 2007 and June 3, 2006, our valuation allowance totaled
$360,000 and $591,000, respectively. The total net deferred tax asset at June
2, 2007 and June 3, 2006 was $1,956,000 and $2,605,000, respectively.

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 June 2, 2007 and June 3, 2006, our
reserve for excess and obsolete inventory was $1,243,000 and $2,053,000,
respectively.

-39-

Effects of Recently Issued Accounting
Pronouncements

Effective June 4, 2006, we adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 improve
financial reporting by clarifying that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage) be recognized
as current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production facility.
To date, the adoption of SFAS No. 151 has had no impact on our financial
condition or results of operations.

Effective June 4, 2006, we adopted the provisions of SFAS No. 123(R),
Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS No. 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123(R) requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are
performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair
value were required. To date, the adoption of SFAS No. 123(R) has not had a
material impact on our financial condition or results of operations.

Effective June 4, 2006, we adopted the provisions of SFAS No. 154,
Accounting Changes and Error Corrections, a replacement of APB Opinion No.
20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS No. 154 changes the requirements for the accounting
for and reporting of a change in accounting principle. Previously, most
voluntary changes in accounting principles required recognition via a
cumulative effect adjustment within net income for the period of the change.
SFAS No. 154 requires retrospective application to prior periods financial
statements, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. To date, the adoption of SFAS
No. 154 has had no impact on our financial condition or results of operations.

In June 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the
accounting for uncertainties in income taxes recognized in an enterprises
financial statements. The interpretation requires that we determine whether it
is more likely than not that a tax position will be sustained upon examination
by the appropriate taxing authority. If a tax position meets the more likely
than not recognition criteria, FIN 48 requires 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 are currently evaluating
the effect of the adoption of FIN 48 on our financial condition and results of
operations.

In June 2006, the FASB ratified the consensus of Emerging Issues Task
Force Issue No. 06-3, How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross versus Net Presentation) (EITF 06-3). EITF 06-3 concluded that the
presentation of taxes imposed on revenue-producing transactions (sales, use,
value added and excise taxes) on either a gross (included in revenues and
costs) or a net (excluded from revenues) basis is an accounting policy that
should be disclosed pursuant to Accounting Principles Board Opinion No. 22.
EITF 06-3 is effective for our fourth quarter of fiscal 2007. We do not

-40-

believe that the adoption of EITF 06-3 will have a material impact on
our financial condition or results of operations.

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

In September 2006, the Securities and Exchange Commission (SEC)
released Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements (SAB No. 108). SAB No. 108 provides interpretative guidance on
how public companies quantify financial statement misstatements. There have
been two common approaches used to quantify such errors. Under an income
statement approach, the roll-over method, the error is quantified as the
amount by which the current year income statement is misstated. Alternatively,
under a balance sheet approach, the iron curtain method, the error is
quantified as the cumulative amount by which the current year balance sheet is
misstated. In SAB No. 108, the SEC established an approach that requires
quantification of financial statement misstatements based on the effects of the
misstatements on each financial statement and the related financial statement
disclosures. This model is commonly referred to as a dual approach because it
requires quantification of errors under both the roll-over and iron curtain
methods. SAB No. 108 is effective for annual financial statements covering the
first fiscal year ending after November 15, 2006. We applied SAB No. 108 using the cumulative effect transition method in connection with the preparation of our annual financial statements for the fiscal year ending June 2, 2007 and did not record any adjustments.

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. We do not believe the adoption of SFAS No. 159 will have a
material impact on our financial condition or results of operations.

Item 7A.
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 2006 fiscal year.

-41-

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 June 2, 2007, our assets and
liabilities would increase or decrease by $4,506,000 and $610,000,
respectively, and our net sales and net earnings would increase or decrease by
$3,151,000 and $321,000, 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 June
2, 2007, our pre-tax earnings would be favorably or unfavorably impacted by
approximately $790,000 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 June 2, 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 $35,975,000.
The bonds bear interest at a floating rate established between seven and 35
days. For 2007, the after-tax interest rate on the bonds approximated 3.5%.
Each 100 basis point (or 1%) fluctuation in interest rates will increase or
decrease interest income on the bonds by approximately $360,000 on an annual
basis.

As of June 2,
2007, we did not maintain any fixed or variable interest rate financing.

As of June 2,
2007, we have available $1,885,000 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 8.
Financial Statements and Supplementary DataFinancial
statements and supplementary data required by Part II, Item 8 are included in
Part IV of this report as indexed at Item 15 (a) 1, and are incorporated by
reference into this Item 8.

Item 9.
Changes in and Disagreements with Accountants on Accounting
and Financial DisclosureNone.

-42-

Item 9A.
Controls and ProceduresEvaluation of Disclosure Controls and
Procedures

As required by
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), we conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as of June 2, 2007.
This evaluation was carried out under the supervision and with participation of
our Chief Executive Officer and Chief Financial Officer. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures. Therefore, effective disclosure controls and procedures can only
provide reasonable assurance of achieving their control objectives. Based upon
our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective as of June
2, 2007, 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 within the time periods specified in the
Securities and Exchange Commissions rules and forms, and is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

Changes in Internal Control over Financial
Reporting

There was no
change in our internal control over financial reporting during the fiscal
quarter ended June 2, 2007 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

Managements Annual Report on Internal
Control over Financial Reporting

Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) under the
Exchange Act.

Our internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:


pertain to
 the maintenance of records that in reasonable detail accurately and fairly
 reflect the transactions and dispositions of our assets;
provide
 reasonable assurance that transactions are recorded as necessary to permit
 preparation of financial statements in accordance with generally accepted
 accounting principles, and that our receipts and expenditures are being made
 only in accordance with authorizations of management and our directors; and
provide
 reasonable assurance regarding prevention and timely detection of
 unauthorized acquisition, use or disposition of our assets that could have a
 material effect on our financial statements.Internal
control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems that are determined to be effective provide only
reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

-43-

Management
assessed the effectiveness of our internal control over financial reporting
based on criteria for effective internal control over financial reporting
described in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

Based on its
assessment, management concluded that we maintained effective internal control
over financial reporting as of June 2, 2007. Grant Thornton LLP, our
independent registered public accounting firm, has issued an attestation report
on managements assessment of the effectiveness of our internal control over
financial reporting as of June 2, 2007. This report, in which Grant Thornton
has expressed an unqualified opinion, appears in this Item 9A.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To The Board of Directors
and StockholdersE-Z-EM, Inc. and Subsidiaries

We have audited managements
assessment, included in the accompanying Managements Annual Report on Internal
Control Over Financial Reporting, that E-Z-EM, Inc. and Subsidiaries (the
Company) maintained effective internal control over financial reporting as of
June 2, 2007, based on criteria established in Internal
Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal control over financial
reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. A companys
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States
of America, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, managements
assessment that E-Z-EM, Inc. and Subsidiaries maintained effective internal
control over financial reporting as of June 2, 2007, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of June 2, 2007, based on the COSO criteria.

-44-

We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of June 2,
2007 and June 3, 2006, and the related consolidated statements of earnings,
stockholders equity and comprehensive income, and cash flows for the fifty-two
weeks ended June 2, 2007, the fifty-three weeks ended June 3, 2006 and the
fifty-two weeks ended May 28, 2005, and our report dated August 7, 2007
expressed an unqualified opinion thereon.

/s/ Grant
 Thornton LLPMelville,
 New YorkAugust 7,
 2007Item 9B.
Other InformationNone.-45-

Part III

The
information required by Part III is omitted from this Annual Report on Form
10-K because we will file a definitive proxy statement within 120 days after
the end of our fiscal year pursuant to Regulation 14A (the Proxy Statement)
for our Annual Meeting of Stockholders, currently scheduled for October 30,
2007. The information included in the Proxy Statement under the respective
headings noted below is incorporated herein by reference.

Item 10.
Directors, Executive Officers and Corporate GovernanceInformation
about our directors is incorporated herein by reference to our Proxy Statement
under the heading Proposal No. 1  Election of Directors. Information about
compliance with Section 16(a) of the Exchange Act is incorporated herein by
reference to our Proxy Statement under the heading Section 16(a) Beneficial
Ownership Reporting Compliance. Information about our Code of Ethics is
incorporated herein by reference to our Proxy Statement under the heading
Committee Charters, Code of Conduct and Ethics, Complaint Procedures and
Corporate Governance Guidelines. Information about our audit committee,
including the members of the committee, and our audit committee financial
expert, is incorporated herein by reference to our Proxy Statement under the
heading Audit Committee Report. The balance of the information required by
this item is contained in the section entitled Executive Officers of the
Company immediately following Item 4 in Part I of this Annual Report on Form
10-K.

Item 11.
Executive CompensationThe
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Executive Compensation.

Item 12.
Security Ownership of Certain Beneficial Owners and
Management and
 Related Stockholder MattersThe
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.

Item 13.
Certain Relationships and Related Transactions, and Director
 IndependenceThe
information required by this caption is incorporated herein by reference to our
Proxy Statement under the headings Certain Relationships and Related
Transactions and Director Independence.

Item 14.
Principal
Accountant Fees and ServicesThe
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Principal Accountant Fees and Services.

-46-

Part IV

Item 15.
Exhibits and Financial Statement SchedulesPage(a) l.     
 Financial StatementsThe
 following consolidated financial statements and supplementary data of
 Registrant and its subsidiaries required by Part II, Item 8, are included in
 Part IV of this report:Report of
Independent Registered Public
 Accounting Firm
52Consolidated
balance sheets  June 2, 2007
 and June 3, 2006
53Consolidated
statements of earnings 
 Fifty-two weeks ended June 2, 2007, fifty-three weeks ended June 3, 2006 and
 fifty-two weeks ended May 28, 2005
55Consolidated
statement of stockholders
 equity and comprehensive income  Fifty-two weeks ended June 2, 2007,
 fifty-three weeks ended June 3, 2006 and fifty-two weeks ended May 28, 2005
56Consolidated
statements of cash flows 
 Fifty-two weeks ended June 2, 2007, fifty-three weeks ended June 3, 2006 and
 fifty-two weeks ended May 28, 2005
58Notes
 to consolidated financial statements
60(a) 2.     
 Financial Statement SchedulesThe
 following consolidated financial statement schedule is included in Part IV of
 this report:Schedule
 II - Valuation and qualifying accounts
95All other
 schedules are omitted because they are not applicable, or not required, or
 because the required information is included in the consolidated financial
 statements or notes thereto.(a) 3.     Exhibits3.1
Restated
 Certificate of Incorporation of the Registrant, as amended
(a)3.2
Amended and
 Restated By-laws of the Registrant
(b)10.1
1983 Stock
 Option Plan of the Registrant, as amended through October 19, 1999
(c)10.2
1984
 Directors and Consultants Stock Option Plan of the Registrant, as amended
 through October 12, 1995
(d)10.3
Employee
 Stock Purchase Plan of the Registrant, as amended through September 30, 2002
(e)10.4
Income
 Deferral Program
(f)10.5
2004 Stock
 and Incentive Award Plan, as amended
(g)-47-

Page(a) 3.     Exhibits (continued)10.6
Asset
 Purchase Agreement dated January 16, 2005 by and among E-Z-EM, Inc. and
 ODell Engineering Ltd. and Philip ODell
(h)10.7
Form of
 Non-statutory Stock Option Agreement for 2004 Stock and Incentive Award Plan
 (Employee)
(i)10.8
Form of
 Non-statutory Stock Option Agreement for 2004 Stock and Incentive Award Plan
 (Member of the Board of Directors)
(j)10.9
Form of
 Incentive Stock Option Agreement for 2004 Stock and Incentive Award Plan
 (Employee)
(k)10.10
Amendment to
 Asset Purchase Agreement dated April 7, 2005 by and between E-Z-EM, Inc.,
 ODell Engineering Ltd. and Philip C. ODell
(l)10.11
Annual
 Incentive Plan, as amended
(m)10.12
Agreement
 for Purchase and Sale dated November 30, 2005 by and between E-Z-EM, Inc. and
 B&R Machine and Tool Corp.
(n)10.13
Summary of
 the Compensation of the Non-employee Directors
(o)10.14
Agreement
 entered into on May 14, 2007, by and between E-Z-EM, Inc. and Dennis J.
 Curtin
(p)10.15
Employment
 agreement dated as of June 27, 2007, between E-Z-EM, Inc. and Anthony A.
 Lombardo
(q)21
Subsidiaries of the Registrant
9623
Consent of Independent Registered Public Accounting
Firm
9731.1
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)
9831.2
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)
10032.1
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)
10232.2
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)
103a)
Incorporated
 by reference to Exhibit 3.1 to the Registrants Registration Statement on
 Form 8-A filed with the Commission on April 8, 2005.b)
Incorporated
 by reference to Exhibit 3.2 to the Registrants Current Report on Form 8-K
 filed with the-48-

Commission
 on January 21, 2005.c)
Incorporated
 by reference to Exhibit 3 to the Registrants Quarterly Report on Form 10-Q
 for the quarterly period ended February 26, 2000.d)
Incorporated
 by reference to Exhibit 10(b) to the Registrants Quarterly Report on Form
 10-Q for the quarterly period ended December 2, 1995.e)
Incorporated
 by reference to Exhibit 10 to the Registrants Quarterly Report on Form 10-Q
 for the quarterly period ended August 31, 2002.f)
Incorporated
 by reference to Exhibit 10(c) to the Registrants Annual Report on Form 10-K
 for the fiscal year ended May 29, 1993.g)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on October 20, 2006.h)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form
 10-Q for the quarterly period ended February 26, 2005.i)
Incorporated
 by reference to Exhibit 10.2 to the Registrants Quarterly Report on Form
 10-Q for the quarterly period ended February 26, 2005.j)
Incorporated
 by reference to Exhibit 10.3 to the Registrants Quarterly Report on Form
 10-Q for the quarterly period ended February 26, 2005.k)
Incorporated
 by reference to Exhibit 10.4 to the Registrants Quarterly Report on Form
 10-Q for the quarterly period ended February 26, 2005.l)
Incorporated
 by reference to Exhibit 10.12 to the Registrants Annual Report on Form 10-K
 for the fiscal year ended May 28, 2005.m)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form
 10-Q for the quarterly period ended March 3, 2007.n)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on December 5, 2005.o)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on August 25, 2006.p)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on May 17, 2007.q)
Incorporated
 by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
 filed with the Commission on July 3, 2007.-49-

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
August 16, 2007

/s/ Anthony A. LombardoAnthony A. Lombardo, President,
 Chief Executive Officer, DirectorPursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.Date
August 16, 2007

/s/
 Paul S. EchenbergPaul S. Echenberg, Chairman of the
 Board, DirectorDate
August 16, 2007

/s/
 Anthony A. LombardoAnthony A. Lombardo, President,
 Chief Executive Officer, Director 
 (Principal Executive Officer)Date
August 16, 2007

/s/ Joseph A.
CacchioliJoseph A. Cacchioli, Vice President -
 Controller and Acting Chief Financial
 Officer (Principal Financial Officer
 and Principal Accounting Officer)Date
August 16, 2007

/s/ Robert J. BeckmanRobert J. Beckman,
DirectorDate
August 16, 2007

/s/ James L. KatzJames L. Katz,
DirectorDate
August 16, 2007

/s/ David P. MeyersDavid P. Meyers,
Director-50-

Date
August 16, 2007

/s/ Adel MichaelAdel Michael, DirectorDate
August 16, 2007

/s/ John T. PrestonJohn T. Preston,
DirectorDate
August 16, 2007

/s/ James H. ThrallJames H. Thrall,
DirectorDate
August 16, 2007

/s/ George P. WardGeorge P. Ward,
Director-51-

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Board of Directors and
Stockholders
  E-Z-EM, Inc. and Subsidiaries

We have audited the
accompanying consolidated balance sheets of E-Z-EM, Inc. and Subsidiaries (the
Company) as of June 2, 2007 and June 3, 2006, and the related consolidated
statements of earnings, stockholders equity and comprehensive income, and cash
flows for the fifty-two weeks ended June 2, 2007, the fifty-three weeks ended
June 3, 2006, and the fifty two weeks ended May 28, 2005. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in
accordance with standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of E-Z-EM, Inc. and Subsidiaries
as of June 2, 2007 and June 3, 2006, and the consolidated results of their
operations and their consolidated cash flows for the fifty-two weeks ended June
2, 2007, the fifty-three weeks ended June 3, 2006, and the fifty two weeks
ended May 28, 2005, in conformity with accounting principles generally accepted
in the United States of America.

As described
in Note A of the notes to the consolidated financial statements, the Company
has adopted Financial Accounting Standards Board Statement No. 123(R), Share
Based Payments on June 4, 2006.

Our audits were conducted
for the purpose of forming an opinion on the basic financial statements taken
as a whole. Schedule II  Valuation and Qualifying Accounts is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. For each of the fifty-two weeks ended June 2, 2007, the
fifty-three weeks ended June 3, 2006, and the fifty two weeks ended May 28,
2005, this schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.

We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of E-Z-EM, Inc. and Subsidiaries internal
control over financial reporting as of June 2, 2007, based on criteria
established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated August 7, 2007 expressed an
unqualified opinion thereon.

/s/ Grant Thornton LLP

Melville, New York
August 7, 2007

-52-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS(in thousands)

June 2,
 2007

June 3,
 2006ASSETSCURRENT
 ASSETSCash

and cash equivalents

$
8,037

$
6,749Debt

and equity securities, at fair value


36,163


33,446Accounts receivable, principally trade, net
 of allowance for doubtful accounts of $928 in 2007 and $888 in 2006


23,460


20,680Inventories, net


29,799


27,028Refundable income taxes


981


2,040Other

current assets


5,788


5,012Current

assets of discontinued operation





426Total

current assets


104,228


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


16,863


12,445INTANGIBLE
 ASSETS, less accumulated amortization of $1,591 in 2007 and $848 in 2006


3,380


4,123DEBT AND
 EQUITY SECURITIES, at fair value


1,196


1,088CASH
 SURRENDER VALUE OF LIFE INSURANCE


6,471


6,335OTHER ASSETS


2,804


3,815NONCURRENT
 ASSETS OF DISCONTINUED OPERATION





605Total

assets

$
134,942

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

-53-

E-Z-EM, Inc. and Subsidiaries

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

June 2,
 2007

June 3,
 2006LIABILITIES AND STOCKHOLDERS
EQUITYCURRENT
 LIABILITIESCurrent

maturities of long-term debt




$
31Accounts payable

$
7,574


5,702Accrued

liabilities


8,435


12,123Accrued

income taxes


1,175


47Current

liabilities of discontinued
 operation





417Total

current liabilities


17,184


18,320OTHER
 NONCURRENT LIABILITIES


3,721


3,630Total

liabilities


20,905


21,950COMMITMENTS
 AND CONTINGENCIESSTOCKHOLDERS
 EQUITYPreferred stock, par value $.10 per share - authorized, 1,000,000 shares; issued, noneCommon stock, par value $.10 per share
 - authorized, 16,000,000 shares; issued and outstanding 10,976,549 shares in
 2007 and 10,862,899 shares in 2006 (excluding 89,205 shares held in treasury
 in 2007 and 2006)


1,098


1,086Additional paid-in capital


31,779


30,071Retained earnings


72,806


64,263Accumulated other comprehensive income


8,354


6,422Total

stockholders equity


114,037


101,842Total

liabilities and stockholders equity

$
134,942

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

-54-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS(in thousands, except per share

data)

Fifty-two
 weeks ended
 June 2,
 2007

Fifty-three
 weeks ended
 June 3,
 2006

Fifty-two
 weeks ended
 May 28,
 2005Net sales


$
137,840



$
137,083



$
111,700Cost of
 goods sold



76,646




77,976




64,360Gross

profit



61,194




59,107




47,340Operating
 expensesSelling,

general and administrative



44,259




43,105




35,282Plant

closings and operational
 restructuring costs








105




2,917Gain on

sale of real property








(1,205
)Research and development



5,671




5,979




5,493Total

operating expenses



49,930




47,984




43,692Operating profit



11,264




11,123




3,648Other income
 (expense)Interest

income



1,424




831




365Interest

expense



(325
)



(434
)



(326
)Foreign

currency exchange losses



(38
)



(487
)



(2
)Other,

net



229




429




3,003Earnings from continuing operations before
 income taxes



12,554




11,462




6,688Income tax
 provision



3,992




3,407




840Earnings from continuing operations



8,562




8,055




5,848Earnings (loss) from discontinued
 operations, net of income tax provision (benefit) of ($28), ($2,471) and
 $1,114 in 2007, 2006 and 2005



(19
)



1,711




1,088NET

EARNINGS


$
8,543



$
9,766



$
6,936Basic
 earnings (loss) per common share From continuing operations


$
.78



$
.74



$
.54From

discontinued operations, net of income
 tax provision (benefit)








.16




.10From

total operations


$
.78



$
.90



$
.64Diluted
 earnings (loss) per common share From continuing operations


$
.77



$
.73



$
.53From

discontinued operations, net of income
 tax provision (benefit)








.15




.10From

total operations


$
.77



$
.88



$
.63The accompanying notes are an integral part
of these financial statements.

-55-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME

Fifty-two weeks ended June 2, 2007,
fifty-three weeks ended
June 3, 2006 and fifty-two weeks ended May 28, 2005
(in thousands, except share data)

Additional
 paid-in
 capital

Retained
 earnings

Accumulated
 other
 comprehensive
 income

Total

Compre-
 hensive
 income
 (loss)Common stockShares

AmountBalance at May 29,
2004


10,698,216

$
1,070


$ 38,445

$
70,638


$
1,622



$
111,775Exercise of stock options, net
of 6,143 shares tendered to satisfy
 withholding taxes


120,789


12


372











384Income tax benefits on stock
options exercised








1,358











1,358Compensation related to stock
option plans, net of income tax benefit








435











435Issuance of stock


8,767


1


107











108Proceeds from subsidiarys
initial public offering, net of financing
 costs and minority interest








1,442











1,442Net earnings











6,936








6,936



$
6,936Cash dividend ($.30 per common
share)











(3,220
)







(3,220
)Net book value of discontinued
operation at date of spin-off








(13,681
)

(19,857
)


173




(33,365
)Unrealized holding gain on debt
and equity securitiesArising during
 the year















1,148




1,148




1,148Reclassification adjustment for
gains included in net earnings















(3,270
)



(3,270
)



(3,270
)Decrease in fair market value on
interest rate swap through date of
 spin-off of discontinued operation















(55
)



(55
)



(55
)Foreign currency translation
adjustments















2,044




2,044




2,044Comprehensive income
























$
6,803Balance at May 28,
2005


10,827,772


1,083


28,478


54,497



1,662




85,720Exercise of stock
options


27,127


3


182











185Income tax benefits on stock
options exercised








1,228











1,228Compensation related to stock
option plans, net of income tax benefit








54











54Issuance of stock


8,000





129











129Net earnings











9,766








9,766



$
9,766Unrealized holding gain on debt
and equity securities















215




215




215Foreign currency translation
adjustments















4,545




4,545




4,545Comprehensive income
























$
14,526Balance at June 3,
2006


10,862,899


1,086


30,071


64,263



6,422




101,842-56-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY AND COMPREHENSIVE INCOME
(continued)

Fifty-two weeks ended June 2, 2007,
fifty-three weeks ended
June 3, 2006 and fifty-two weeks ended May 28, 2005
(in thousands, except share data)

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
income

Total

Compre-
hensive
income
(loss)Common stockShares

AmountBalance at June 3,
2006


10,862,899

$
1,086

$
30,071


$
64,263



$
6,422


$
101,842Exercise of stock
options


105,900


11


1,154












1,165Income tax benefits on stock
options exercised








389












389Compensation related to stock
option plans, net of income tax benefit








32












32Issuance of stock


7,750


1


133












134Net earnings












8,543








8,543


$
8,543Unrealized holding gain on debt
and equity securities

















90



90



90Foreign currency translation
adjustments

















1,842



1,842



1,842Comprehensive income
























$
10,475Balance at June 2,
2007


10,976,549

$
1,098

$
31,779


$
72,806



$
8,354


$
114,037The accompanying
notes are an integral part of this financial statement.

-57-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED
STATEMENTS OF CASH FLOWS(in thousands)

Fifty-two
 weeks ended
 June 2,
 2007

Fifty-three
 weeks ended
 June 3,
 2006

Fifty-two
 weeks ended
 May 28,
 2005Cash flows from operating activities:Net earnings


$
8,543



$
9,766



$
6,936(Earnings) loss from discontinued
 operations, net of tax



19




(1,711
)



(1,088
)Adjustments to reconcile net earnings to
 net cash provided by operating activitiesDepreciation and amortization



3,442




3,657




3,139Impairment of long-lived assets













500Gain on sale of investments








(100
)



(3,270
)Provision for doubtful accounts



83




78




110(Gain) loss on sale of assets



10




(1,157
)



68Tax benefit on exercise of stock options








1,228




1,358Deferred income tax provision (benefit)



616




(159
)



(325
)Stock option compensation cost



50




86




427Stock compensation cost



134




126




98Changes in operating assets and
 liabilities, net of businesses divestedAccounts receivable



(2,649
)



(3,523
)



(1,243
)Inventories



(1,955
)



(4,356
)



(3,906
)Other current assets



162




360




(270
)Other assets



125




(311
)



(456
)Accounts payable



1,776




656




1,320Accrued liabilities



(3,784
)



993




2,155Accrued income taxes



1,115




(149
)



24Other noncurrent liabilities



68




179




183Net cash provided by (used in) operating
 activities of discontinued operations



(502
)



(193
)



403Net cash provided by operating activities



7,253




5,470




6,163Cash flows from
investing activities:Additions to property, plant and equipment



(6,680
)



(1,742
)



(4,154
)Proceeds from sale of assets



1




4,774




408Purchase of intangible assets













(3,094
)Proceeds from sale of investments








100




600Investments at cost













(100
)Available-for-sale securitiesPurchases



(348,795
)



(212,986
)



(65,295
)Proceeds from sale



346,078




197,959




62,670Net cash provided by (used in) investing
 activities of discontinued operations



1,068




(7
)



(11,150
)Net cash used in investing activities



(8,328
)



(11,902
)



(20,115
)-58-

E-Z-EM, Inc. and Subsidiaries

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

Fifty-two
 weeks ended
 June 2,
 2007

Fifty-three
 weeks ended
 June 3,
 2006

Fifty-two
 weeks ended
 May 28,
 2005Cash flows
 from financing activities:Repayments of debt


$
(31
)


$
(58
)


$
(84
)Proceeds from repayment of debt by
 discontinued operation













3,000Dividends paid













(3,220
)Proceeds from exercise of stock options



1,165




185




384Tax benefit on exercise of stock options



389Proceeds from issuance of stock in
 connection with the stock purchase plan








3




10Cash distributed with discontinued
 operation













(8,453
)Net cash provided by (used in) financing
 activities of discontinued operations



70




(431
)



18,943Net cash provided by (used in) financing
 activities



1,593




(301
)



10,580Effect of exchange rate changes on cash and
 cash equivalents



770




3,359




1,373INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS



1,288




(3,374
)



(1,999
)Cash and cash equivalentsBeginning of year



6,749




10,123




12,122End of year


$
8,037



$
6,749



$
10,123Supplemental disclosure of cash flow
 information:Cash paid during the year for:Interest


$
299



$
353



$
95Income taxes (net of refunds of $1,460 in
 2007 and $2 in 2006)


$
966



$
1,798



$
2,283Supplemental disclosure of non-cash
 financing activities:Purchase of intangible assets












$
1,877The accompanying notes are an
integral part of these financial statements.

-59-

E-Z-EM, Inc. and
Subsidiaries

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

June 2, 2007, June
3, 2006 and May 28, 2005

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of
  significant accounting policies is presented to assist the reader in
  understanding and evaluating the consolidated financial statements. These
  policies are in conformity with accounting principles generally accepted in
  the United States of America, and have been applied consistently in all
  material respects.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 ConsolidationThe consolidated
  financial statements include the accounts of E-Z-EM, Inc. and all wholly
  owned subsidiaries, as well as the accounts of AngioDynamics through its
  spin-off on October 30, 2004. As a result of the spin-off, AngioDynamics is
  reported separately as a discontinued operation for all periods presented
  within the consolidated financial statements (see Note B). Toho Kagaku
  Kenkyusho Co., Ltd., the Companys wholly owned Japanese subsidiary, is also
  reported separately as a discontinued operation for all periods presented
  within the consolidated financial statements (see Note B). All significant
  intercompany balances and transactions have been eliminated.Operations outside the
  United States are included in the consolidated financial statements and
  consist of: a subsidiary operating a mining and chemical processing operation
  in Nova Scotia, Canada and a manufacturing and marketing facility in
  Montreal, Canada; a subsidiary located in the United Kingdom promoting and
  distributing products; and a subsidiary located in Holland promoting and
  distributing products.Fiscal YearThe Company reports on
  a fiscal year that concludes on the Saturday nearest to May 31. Fiscal year
  2007 ended on June 2, 2007, for a reporting period of fifty-two weeks. Fiscal
  year 2006 ended on June 3, 2006, for a reporting period of fifty-three weeks.
  Fiscal year 2005 ended on May 28, 2005, for a reporting period of fifty-two
  weeks.-60-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 2, 2007, June
3, 2006 and May 28, 2005

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and Cash EquivalentsThe Company considers
  all unrestricted highly liquid investments purchased with a maturity of less
  than three months to be cash equivalents. Included in cash equivalents are
  Eurodollar investments of $3,100,000 and $750,000 at June 2, 2007 and June 3,
  2006, respectively. The carrying amount of these financial instruments
  reasonably approximates fair value because of their short maturity.
  Foreign-denominated cash and cash equivalents aggregated $4,139,000 and
  $4,113,000 at June 2, 2007 and June 3, 2006, respectively.As of June 2, 2007 and
  June 3, 2006, approximately $7,582,000 and $6,306,000, respectively, of cash
  held by financial institutions in the United States and other countries
  exceeded Federal Deposit Insurance Corporation and other government agencies
  insured amounts.Debt and Equity SecuritiesDebt and equity
  securities are classified as available-for-sale securities and reported at
  fair value, with unrealized gains and losses excluded from operations and
  reported as a component of accumulated other comprehensive income, net of the
  related tax effects, in stockholders equity. Cost is determined using the
  specific identification method.Accounts ReceivableAccounts receivable,
  principally trade, are generally due within 30 to 90 days and are stated at
  amounts due from customers, net of an allowance for doubtful accounts. The
  Company performs ongoing credit evaluations and adjusts credit limits based
  upon payment histories and the customers current creditworthiness, as
  determined by a review of their current credit information. The Company
  continuously monitors aging reports, collections and payments from customers,
  and maintains a provision for estimated credit losses based upon historical
  experience and any specific customer collection issues that have been
  identified. While such credit losses have historically been within
  expectations and the provisions established, the Company cannot guarantee the
  same credit loss rates will be experienced in the future. The Company writes
  off accounts receivable when they become uncollectible.Changes in the Companys allowance for doubtful
  accounts are as follows:June 2,
  2007

June 3,
  2006(in thousands)Beginning balance


$
888



$
837Provision for doubtful accounts



83




78Write-offs



(43
)



(27
)Ending balance


$
928



$
888-61-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 2, 2007, June
3, 2006 and May 28, 2005

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

InventoriesInventories are valued
  at the lower of cost (on the first-in, first-out method) or market. On a
  quarterly basis, the Company reviews inventory quantities on hand and
  analyzes the provision for excess and obsolete inventory based primarily on
  product expiration dating and its estimated sales forecast, which is based on
  sales history and anticipated future demand. At June 2, 2007 and June 3,
  2006, reserve for excess and obsolete inventory was $1,243,000 and
  $2,053,000, respectively.Property, Plant and EquipmentProperty, plant and
  equipment are stated at cost, less accumulated depreciation. Depreciation is
  computed principally using the straight-line method over the estimated useful
  lives of the assets. Leasehold improvements are amortized over the terms of
  the related leases or the useful life of the improvements, whichever is
  shorter. Expenditures for repairs and maintenance are charged to expense as
  incurred. Renewals and betterments are capitalized. Depreciation expense was
  $2,699,000, $2,913,000 and $2,903,000 for 2007, 2006 and 2005, respectively.Accounting for Business
  Combinations, Goodwill and Intangible AssetsIn accordance with
  Statement of Financial Accounting Standards (SFAS) No. 141, Business
  Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, the
  Company accounts for all business combinations initiated after June 30, 2001
  under the purchase method. In addition, all intangible assets acquired that
  are obtained through contractual or legal right, or are capable of being
  separately sold, transferred, licensed, rented or exchanged are recognized as
  an asset apart from goodwill. In accordance with SFAS No. 142, goodwill and
  intangibles with indefinite lives, which are no longer amortized, are
  assessed for impairment annually, or as events or circumstances indicate that
  an asset may be impaired, by applying a fair value based test.Intangible assets,
  which consist primarily of licenses, customer relationships, technology,
  trademarks and know-how, are being amortized on a straight-line basis over
  the estimated useful lives of the respective assets of approximately six and
  one half to ten years. The remaining weighted average amortization period for
  intangible assets was 4.68 and 5.66 years at June 2, 2007 and June 3, 2006,
  respectively. Amortization of intangible assets was $743,000, $744,000 and
  $237,000 for 2007, 2006 and 2005, respectively. Estimated amortization expense
  related to these intangibles for the succeeding five years is as follows:(in thousands
)2008


$
7442009


$
7442010


$
7442011


$
7432012


$
293Thereafter


$
112-62-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 2, 2007, June
3, 2006 and May 28, 2005

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On an ongoing basis,
  management reviews the valuation and amortization of intangible assets to
  determine possible impairment by considering current operating results and
  comparing the carrying values to the anticipated undiscounted future cash
  flows of the related assets.Revenue RecognitionThe Company recognizes
  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 the
  Company, the distributor and the hospital, the distributor may be entitled to
  a rebate. The Company deducts all rebates from sales and has a provision for
  rebates based on historical information for all rebates that have not yet
  been submitted to the Company by the distributors. The rebate allowance is
  reported as a component of accounts receivable in the accompanying balance
  sheets.Changes in the Companys rebate allowance are as
  follows:June 2,
  2007

June 3,
  2006(in thousands)Beginning balance


$
1,866



$
1,397Provision for rebates



26,858




25,855Rebate credits issued



(26,642
)



(25,386
)Ending balance


$
2,082



$
1,866All product returns
  must be pre-approved by the Company 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.
  Historically, product returns have been minimal.The Company records
  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
  $1,003,000 and $688,000 at June 2, 2007 and June 3, 2006, respectively, and
  are reported as a component of accrued liabilities and other noncurrent
  liabilities in the accompanying balance sheets. Service costs are expensed as
  incurred.Research
  and DevelopmentThe Company charges all
  costs incurred to establish the technological feasibility of a product or
  product enhancement to research and development expense.-63-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Shipping and Handling CostsShipping and
 handling costs, associated with the distribution of finished product to
 customers, are recorded in costs of goods sold and are recognized when the
 related finished product is shipped to the customer.AdvertisingAll costs
 associated with advertising are expensed when incurred. Advertising expense,
 included in selling, general and administrative expenses, was $918,000,
 $1,184,000 and $674,000 in 2007, 2006 and 2005, respectively.Income TaxesDeferred
 income taxes are recognized for temporary differences between financial
 statement and income tax bases of assets and liabilities and loss
 carryforwards and tax credit carryforwards for which income tax benefits are
 expected to be realized in future years. A valuation allowance is established
 to reduce deferred tax assets when it is more likely than not that all, or
 some portion, of such deferred tax assets will not be realized. The effect on
 deferred taxes of a change in tax rates is recognized in income in the period
 in which the tax rate change is enacted.Foreign Currency TranslationIn
 accordance with SFAS No. 52, Foreign Currency Translation, the Company has
 determined that the functional currency for its foreign subsidiaries is the
 local currency. This assessment considers that the subsidiaries day-to-day
 operations are not dependent upon the economic environment of the parents
 functional currency, financing is effected through their own operations, and
 the foreign operations primarily generate and expend foreign currency. Foreign
 currency translation adjustments are accumulated as a component of
 accumulated other comprehensive income in stockholders equity.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.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) do not apply to any stock options
 outstanding as of June 4, 2006, since all such options were fully vested.-64-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

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.The Company
 recognized pre-tax share-based compensation expense of $1,000 in 2007 for
 awards to members of the Board of Directors. The Company also recognized
 pre-tax share-based compensation expense of $49,000 ($31,000 after tax
 effects), $86,000 ($54,000 after tax effects) and $453,000 ($435,000 after
 tax effects) in 2007, 2006 and 2005, respectively, under its plans and
 certain AngioDynamics plans for options granted in prior years to consultants
 and 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 June 2, 2007, there was
 $312,000 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 year.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.-65-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

The
 following table illustrates the effect on net earnings and earnings per
 common share if the Company had applied the fair value recognition provisions
 of SFAS No. 123 to stock options granted under its stock-based compensation
 plans to employees and to members of the Board of Directors:2006

2005(in thousands,
 except per share data)Net earnings, as
reported

$
9,766


$
6,936Deduct: Total stock-based
employee
 compensation expense determined under the fair value based method for all
 awards, net of income tax effects (see Note P)


(2,393
)


(2,808
)Pro forma net earnings

$
7,373


$
4,128Earnings per common
shareBasic - as
reported

$
.90


$
.64Basic - pro
forma


.68



.38Diluted 
as reported

$
.88


$
.63Diluted 
pro forma


.66



.38Earnings Per Common ShareBasic
 earnings per share are based on the weighted average number of common shares
 outstanding without consideration of potential common stock. Diluted earnings
 per share are based on the weighted average number of common and potential
 dilutive common shares outstanding. The calculation takes into account the
 shares that may be issued upon exercise of stock options, reduced by the
 shares that may be repurchased with the funds received from the exercise,
 based on the average price during the period.The following
 table sets forth the reconciliation of the weighted average number of common
 shares:2007

2006

2005(in thousands)Basic


10,925


10,849


10,762Effect of
 dilutive securities (stock
options)


206


257


189Diluted


11,131


11,106


10,951Excluded
 from the calculation of earnings per common share, are options to purchase
 228,750 shares of common stock at an exercise price of $17.49 per share for 2007
 and options to purchase 193,750 shares of common stock at an exercise price
 of $17.49 per share for 2006, as their inclusion would be anti-dilutive. No
 options were excluded from the calculation of earnings per common share for
 2005.-66-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Use of EstimatesThe
 preparation of financial statements in conformity with accounting principles
 generally accepted in the United States of America requires management to
 make estimates and assumptions that affect the reported amounts of assets and
 liabilities and disclosures of contingent assets and liabilities at year-end
 and the reported amounts of revenues and expenses during the reporting
 period. Actual results could differ from those estimates.Fair Value of Financial InstrumentsThe Company
 has estimated the fair value of financial instruments using available market
 information and other valuation methodologies in accordance with SFAS No.
 107, Disclosures About Fair Value of Financial Instruments. Management of
 the Company believes that the fair value of financial instruments, consisting
 of cash and cash equivalents, accounts receivable and accounts payable,
 approximates carrying value due to the immediate or short-term maturity of
 these items. Debt and equity securities are reported at their fair values
 based on market quotes.Effects of Recently Issued Accounting PronouncementsEffective
 June 4, 2006, the Company adopted the provisions of SFAS No. 151, Inventory
 Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS
 No. 151 improve financial reporting by clarifying that abnormal amounts of
 idle facility expense, freight, handling costs, and wasted materials
 (spoilage) be recognized as current-period charges and by requiring the
 allocation of fixed production overheads to inventory based on the normal
 capacity of the production facility. To date, the adoption of SFAS No. 151
 has had no impact on the Companys financial condition or results of
 operations.Effective
 June 4, 2006, the Company adopted the provisions of SFAS No. 154, Accounting
 Changes and Error Corrections, a replacement of APB Opinion No. 20,
 Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
 Financial Statements. SFAS No. 154 changes the requirements for the
 accounting for and reporting of a change in accounting principle. Previously,
 most voluntary changes in accounting principles required recognition via a
 cumulative effect adjustment within net income for the period of the change.
 SFAS No. 154 requires retrospective application to prior periods financial
 statements, unless it is impracticable to determine either the
 period-specific effects or the cumulative effect of the change. To date, the
 adoption of SFAS No. 154 has had no impact on the Companys financial
 condition or results of operations.-67-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

In June
 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
 in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
 48 clarifies the accounting for uncertainties in income taxes recognized in
 an enterprises financial statements. The interpretation requires that the
 Company determine whether it is more likely than not that a tax position will
 be sustained upon examination by the appropriate taxing authority. If a tax
 position meets the more likely than not recognition criteria, FIN 48 requires
 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 is currently evaluating the effect of the adoption of
 FIN 48 on its financial condition and results of operations.In June
 2006, the FASB ratified the consensus of Emerging Issues Task Force Issue No.
 06-3, How Taxes Collected from Customers and Remitted to Governmental
 Authorities Should Be Presented in the Income Statement (That Is, Gross
 versus Net Presentation) (EITF 06-3). EITF 06-3 concluded that the
 presentation of taxes imposed on revenue-producing transactions (sales, use,
 value added and excise taxes) on either a gross (included in revenues and
 costs) or a net (excluded from revenues) basis is an accounting policy that
 should be disclosed pursuant to Accounting Principles Board Opinion No. 22.
 EITF 06-3 is effective for the Company in the fourth quarter of fiscal 2007.
 The Company does not believe that the adoption of EITF 06-3 will have a
 material impact on its financial condition or results of operations.In September
 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement
 defines fair value, establishes a framework for measuring fair value in
 generally accepted accounting principles, and expands disclosures about fair
 value measurements. The standard applies whenever other standards require (or
 permit) assets or liabilities to be measured at fair value but does not
 expand the use of fair value in any new circumstances. This statement is
 effective for financial statements issued for fiscal years beginning after
 November 15, 2007, and interim periods within those fiscal years. The Company
 does not believe that the adoption of SFAS No. 157 will have a material
 impact on its financial condition or results of operations.-68-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

In September
 2006, the Securities and Exchange Commission (SEC) released Staff
 Accounting Bulletin No. 108, Considering the Effects of Prior Year
 Misstatements When Quantifying Misstatements in Current Year Financial
 Statements (SAB No. 108). SAB No. 108 provides interpretative guidance on
 how public companies quantify financial statement misstatements. There have
 been two common approaches used to quantify such errors. Under an income statement
 approach, the roll-over method, the error is quantified as the amount by
 which the current year income statement is misstated. Alternatively, under a
 balance sheet approach, the iron curtain method, the error is quantified as
 the cumulative amount by which the current year balance sheet is misstated.
 In SAB No. 108, the SEC established an approach that requires quantification
 of financial statement misstatements based on the effects of the
 misstatements on each financial statement and the related financial statement
 disclosures. This model is commonly referred to as a dual approach because
 it requires quantification of errors under both the roll-over and iron
 curtain methods. SAB No. 108 is effective for annual financial statements
 covering the first fiscal year ending after November 15, 2006. The Company applied SAB No. 108 using the cumulative effect transition method in connection with the preparation of its annual financial statements for the fiscal year ending June 2, 2007 and did not record any adjustments.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.NOTE B  DISCONTINUED OPERATIONS

Toho Kagaku Kenkyusho Co., Ltd.In fiscal
 2007, the Company completed the wind-down of Toho Kagaku Kenkyusho Co., Ltd.
 (Toho), a wholly owned Japanese subsidiary. The Company decided to close
 Toho and exit this 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 current inventory could be sold, accounts receivable collected
 and the property sold in an organized fashion, while also satisfying all
 outstanding liabilities.-69-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE B  DISCONTINUED OPERATIONS (continued)

As a result of this plan, foreign currency translation gains (losses)
 of ($35,000) and $183,000 included in accumulated other comprehensive income
 have been charged to results of operations for 2007 and 2006, respectively,
 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. In December 2006, the Company completed the wind-down by selling
 the land and building comprising its Toho facility for $1,101,000 and
 recognized a gain on the sale of $281,000. The decision to close the Toho
 operations resulted in a deduction for U.S. Federal income tax purposes
 approximating $7,383,000. During 2007 and 2006, the Company recorded Federal
 tax benefits of $29,000 and $2,481,000, respectively, relating to this tax
 deduction. For all periods presented, Toho is accounted for as a discontinued
 operation in the Companys financial statements in accordance with SFAS No.
 144, Accounting for Impairment and Disposal of Long-Lived Assets. Amounts
 in the financial statements and related notes for all periods shown have been
 reclassified to reflect the discontinued operation.Changes in
 project costs, primarily severance and the above-mentioned impairment, are as
 follows:2007

2006(in thousands)Beginning
 balance

$
333Recorded


217

$
333Paid


(550
)Ending
 balance

$


$
333Summarized results of operations for Toho as reported in earnings
 (loss) from discontinued operations in the accompanying consolidated
 statements of earnings are as follows:2007

2006

2005(in thousands)Net salesFrom unaffiliated
customers

$
81

$
1,286

$
1,375Total net sales

$
81

$
1,286

$
1,375Loss before income
taxes

$
(47
)
$
(760
)
$
(129
)Income tax provision
(benefit)


(28
)

(2,471
)

11Earnings (loss) from
discontinued operation

$
(19
)
$
1,711

$
(140
)-70-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE B  DISCONTINUED OPERATIONS (continued)

The following table sets forth the carrying amounts of the major
 classes of assets and liabilities of Toho, which are classified as assets and
 liabilities of discontinued operation in the accompanying consolidated
 balance sheet at June 3, 2006 (amounts in thousands):ASSETSCash and
 cash equivalents

$
73Accounts
 receivable, net


229Inventory


124Current
 assets of discontinued operation

$
426Property,
 plant and equipment

$
603Other assets


2Noncurrent
 assets of discontinued operation

$
605LIABILITIESAccounts
 payable

$
19Accrued
 liabilities


392Accrued
 income taxes


6Current
 liabilities of discontinued operation

$
417AngioDynamics, Inc.

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

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

-71-



E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE B  DISCONTINUED OPERATIONS (continued)

In 2004, E-Z-EM entered into three agreements with AngioDynamics  a
 master separation and distribution agreement, a corporate agreement and a tax
 allocation and indemnification agreement  that relate to its relationship
 with AngioDynamics both before and after the separation of AngioDynamics from
 the Company. All of the agreements between the Company and AngioDynamics were
 made in the context of a parent-subsidiary relationship and were negotiated
 in the overall context of the spin-off.Summarized results of operations for AngioDynamics, including
 minority interest, as reported in earnings from discontinued operations in
 the accompanying consolidated statements of earnings are as follows:2005(in thousands)Net salesFrom
unaffiliated customers


$
22,342From
affiliates



420Total net sales


$
22,762Earnings before income
taxes


$
2,628Income tax
provision



1,103Earnings before minority
interest



1,525Minority interest



297Earnings from discontinued
operation


$
1,228For 2005,
 the results of operations for AngioDynamics represented twenty-two weeks
 activity.-72-


E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE C - COMPREHENSIVE INCOME

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

2007

2006

2005(in thousands)Net earnings

$
8,543

$
9,766

$
6,936Unrealized holding gain on debt
and equity
 securities:Arising during
the year, net of income tax
 provision of $18, $127 and $124 in 2007, 2006 and 2005, respectively


90


215


1,148Reclassification
 adjustment for gains included in net earnings (see Note G)








(3,270
)Decrease in
 fair market value on interest rate swap:Arising during
the year, net of income tax
 benefit of $32 in 2005








(55
)Foreign
 currency translation adjustments:Arising during
the year


1,842


4,545


2,044Comprehensive
income

$
10,475

$
14,526

$
6,803The
components of accumulated other comprehensive income, net of related tax, are
as follows:

June 2,
 2007

June 3,
 2006(in thousands)Unrealized holding gain on debt
and equity
 securities, net of income tax liability of $326 and $308 at June 2, 2007 and
 June 3, 2006, respectively

$
613

$
523Cumulative
 translation adjustments


7,741


5,899Accumulated
other comprehensive income

$
8,354

$
6,422-73-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE D  ASSET PURCHASE

On January
 16, 2005, the Company entered into an Asset Purchase Agreement (the
 Agreement) with oDell Engineering Ltd. and Philip ODell, the sole shareholder
 and officer of ODell Engineering.Under the
 Agreement, the Company agreed to purchase all of ODell Engineerings assets
 related to its RSDL skin decontaminant (RSDL) business and technology.
 These assets included all licenses, intellectual property, customer orders,
 contracts and all other assets and properties relating to ODell
 Engineerings RSDL business and technology (collectively, the RSDL Assets).The purchase
 price for the RSDL Assets was (i) $5.0 million, of which $500,000 was paid
 upon signing the Agreement, $2.5 million was paid at closing on April 7,
 2005, and the balance of which was paid in three installments over the two
 years following the closing and (ii) royalty payments, not to exceed $8.0
 million in total, on sales of RSDL products over the seven years following
 the closing. The net present value of the guaranteed payments totaled
 $4,877,000 and, together with transaction costs of $94,000, was allocated,
 based on the relative fair values of license agreements of $4,577,000 and
 customer relationships of $394,000, and reported in intangible assets in the
 accompanying balance sheet.The
 Agreement also provides that Philip ODell will provide consulting services
 to the Company over a three-year term, with diminishing time commitments in
 the second and third years, relating to commercialization of the RSDL
 technology. Under the consulting arrangement, Mr. ODell is entitled to
 royalty payments, calculated at 4% of net sales of patented products and 2%
 of net sales of unpatented products, for seven years based on inventions
 created, developed or introduced to the Company by him related to
 decontamination that are not part of the RSDL technology acquired by the
 Company. ODell Engineering and Mr. ODell also agreed not to compete with
 the Company in the sale of RSDL products or other decontamination products
 anywhere in the world for seven years following the closing of the
 acquisition.-74-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE E  PLANT CLOSING AND OPERATIONAL
RESTRUCTURING

In May 2005,
 the Company substantially completed its plan to further streamline its
 operations, specifically by moving its powder-based barium production in
 Westbury, N.Y. to its manufacturing facility in Montreal, Canada. For 2006
 and 2005, project costs aggregated $105,000 and $2,917,000, respectively, of
 which approximately $1,761,000 of the 2005 amount was severance relating to
 69 employees, with the balance primarily for training, relocation and
 regulatory costs. On January 31, 2006, the Company completed the sale of its
 Westbury manufacturing facility for $5,100,000. As a result, the Company
 recognized a gain on the sale of this property of $1,205,000 during 2006.Changes in
 project costs are as follows:June 3, 
 2006(in thousands)Beginning
 balance


$
598Recorded



105Paid



(703
)Ending
 balance


$
NOTE F - ASSET IMPAIRMENT CHARGE

In
 accordance with EITF 03-1, The Meaning of Other-Than-Temporary Impairment
 and Its Application to Certain Investments, the Company recorded an
 impairment charge in the fourth quarter of 2005, with no associated tax
 benefit, of $500,000, relating to its investment in 3CPM Company, Inc.
 (3CPM), as it was determined that the fair value of such investment was
 zero, with no future cash flows anticipated due to 3CPMs inability to
 generate income from operations or raise additional capital. 3CPM is a
 Delaware corporation, based in Towson, Maryland, that develops non-invasive
 GI diagnostic equipment. The Companys investment in 3CPM was accounted for
 at cost. For 2005, the impairment charge is included in the consolidated
 statement of earnings under the caption Other, net.-75-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE G - DEBT AND EQUITY SECURITIES

Debt
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


$
939Debt
and equity securities at June 3, 2006 consisted of the following:

Amortized
 cost

Fair
 value

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


$
2,000


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



16,525



16,525Due after 20 years



14,765



14,765Other



156



156$
33,446


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


$
257


$
1,088


$
831$
257


$
1,088


$
831-76-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE G - DEBT AND EQUITY SECURITIES
(continued)

During 2005,
 the Company sold 400,000 shares of its investment in Cedara Software
 Corporation, resulting in a gain of $3,270,000, which is included in the
 consolidated statement of earnings under the caption Other, net.NOTE H - INVENTORIES

Inventories
 consist of the following:June 2,
 2007

June 3,
 2006(in thousands)Finished
 goods

$
15,016

$
12,140Work in
 process


247


604Raw
 materials


14,536


14,284$
29,799

$
27,028NOTE I - PROPERTY, PLANT AND EQUIPMENT, AT COST

Property,
 plant and equipment are summarized as follows:Estimated
 useful
 lives

June 2,
 2007

June 3,
 2006(in thousands)Building and building improvements


7 to 30 years

$
9,070

$
7,495Machinery and
equipment


3 to 10 years


34,176


33,667Leasehold improvements


Shorter of
 lease term or
 useful life


1,478


1,39844,724


42,560Less accumulated depreciation and
 amortization





28,574


30,80216,150


11,758Land





713


687$
16,863

$
12,445-77-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE J - INCOME TAXES

Income tax
 expense analyzed by category and by income statement classification is
 summarized as follows:2007

2006

2005(in thousands)CurrentFederal

$
1,885

$
2,283

$
291State and local


61


76


55Foreign


1,430


1,207


819Subtotal


3,376


3,566


1,165Deferred


616


(159
)

(325
)Total

$
3,992

$
3,407

$
840Temporary
 differences that give rise to deferred tax assets and liabilities are
 summarized as follows:June 2,
 2007

June 3,
 2006(in thousands)Deferred tax assetsTax operating loss
carryforwards




$
1,270Capital loss
carryforwards

$
385


332Tax credit
carryforwards


20


20Alternative minimum tax credit
carryforward


4


4Expenses incurred not currently
deductible


1,524


1,271Deferred compensation
costs


955


1,014Inventories


94


113Write-down of
investments


174


185Other


368


289Gross deferred tax
asset


3,524


4,498Deferred tax
liabilitiesExcess tax over book
depreciation


793


910Unrealized investment
gains


326


307Other


89


85Gross deferred tax
liability


1,208


1,302Valuation allowance


(360
)

(591
)Net deferred tax asset

$
1,956

$
2,605-78-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE J - INCOME TAXES (continued)

If not
 utilized, the tax credit carryforwards of $20,000 will expire in 2013.
 Capital loss carryforwards of $219,000 will expire in 2011 and capital loss
 carryforwards of $166,000 do not expire.At June 2,
 2007, undistributed earnings of certain foreign subsidiaries aggregated
 $30,552,000 that will not be subject to U.S. tax until distributed as
 dividends. Any taxes paid to foreign governments on these earnings may be
 used, in whole or in part, as credits against the U.S. tax on any dividends
 distributed from such earnings. On remittance, certain foreign countries
 impose withholding taxes that are then available for use as credits against a
 U.S. tax liability, if any, subject to certain limitations. The amount of
 withholding tax that would be payable on remittance of the entire amount of
 undistributed earnings would approximate $1,476,000. The Company has not
 provided taxes on the undistributed earnings of its wholly owned foreign
 subsidiaries, because the extent of taxes paid to certain foreign governments
 would be deemed to approximate the estimated U.S. taxes, and may be used as
 credits against such U.S. taxes. In addition, the Company has no present
 plans to distribute earnings from any of its foreign subsidiaries.Deferred tax
 assets and liabilities are included in the consolidated balance sheets as
 follows:June 2,
 2007

June 3,
 2006(in thousands)Current -
 Other current assets

$
1,354

$
1,209Noncurrent -
 Other assets


1,329


2,100Noncurrent -
 Other noncurrent liabilities


(727
)

(704
)Net deferred
 tax asset

$
1,956

$
2,605Earnings
 from continuing operations before income taxes for U.S. and international
 operations consist of the following:2007

2006

2005(in thousands)U.S.

$
7,912

$
7,452

$
549International


4,642


4,010


6,139$
12,554

$
11,462

$
6,688-79-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE J - INCOME TAXES (continued)

The
 Companys consolidated income tax provision has differed from the amount that
 would be provided by applying the U.S. Federal statutory income tax rate to
 the Companys earnings from continuing operations before income taxes for the
 following reasons:2007

2006

2005(in thousands)Income tax provision

$
3,992

$
3,407

$
840Effect of:State income taxes, net of
Federal tax
 benefit


(41
)

(53
)

(34
)Research and development tax
credit


65


34


47Dividend repatriation





(87
)Tax-exempt portion of investment
income


381


214


95Change in valuation
allowance





456


1,447Nontaxable income


114


134


108Nondeductible expenses


(276
)

(233
)

(309
)Other


33


25


80Income tax provision at
statutory tax rate
 of 34%

$
4,268

$
3,897

$
2,274For 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 2006, the Companys effective tax rate of 30%
 differed from the Federal statutory tax rate of 34% due primarily to the
 reversal of a valuation allowance of $456,000 for a previously impaired,
 non-core equity security, since, at that time, it was more likely than not
 that such benefit would be realized. For 2005, the Companys effective tax
 rate of 13% differed from the Federal statutory tax rate of 34% due primarily
 to the reversal of valuation allowances for a previously impaired, non-core
 equity security sold in 2005 and losses of a U.S. subsidiary which operated
 in Puerto Rico, partially offset by non-deductible expenses, including stock
 option compensation costs of $377,000.The U.S.
 Federal income tax returns of the Company through May 31, 2003 are closed by
 Internal Revenue Code regulations. The Federal income tax returns filed by
 the Companys Canadian and Netherland subsidiaries in their local tax
 jurisdictions through May 31, 2003 are closed by local statutes. The U.K.
 Federal income tax returns filed by the Companys U.K. subsidiary through May
 31, 2005 are closed by local statutes.NOTE K  LINE OF CREDIT

The
 Companys Canadian subsidiary has a $1,885,000 (Canadian $2,000,000) bank
 line of credit, which is collateralized by accounts receivable and inventory
 and expires on October 31, 2007.During 2006
 and 2005, the weighted average interest rates on short-term debt were 4.73%
 and 4.80%, respectively.-80-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE L - ACCRUED LIABILITIES AND OTHER
NONCURRENT LIABILITIES


Accrued liabilities consist of the following:June 2,
 2007

June 3,
 2006(in thousands)Payroll and
 related expenses

$
5,959

$
7,634Liability
 for assets acquired (see Note D)





669Other


2,476


3,820$
8,435

$
12,123Other
 noncurrent liabilities consist of the following:June 2,2007

June 3,2006(in thousands)Deferred
 compensation

$
2,662

$
2,738Deferred
 taxes


727


704Other


332


188$
3,721

$
3,630NOTE M - RETIREMENT PLANS

E-Z-EM
 provides pension benefits through a Profit-Sharing Plan, under which E-Z-EM
 makes discretionary contributions to eligible employees, and a companion
 401(k) Plan, under which eligible employees can defer a portion of their
 annual compensation, part of which is matched by E-Z-EM. This plan covers all
 E-Z-EM employees not otherwise covered by collective bargaining agreements.
 In 2007, 2006 and 2005, profit-sharing contributions were $506,000, $473,000
 and $466,000, respectively, and 401(k) matching contributions were $319,000,
 $297,000 and $294,000, respectively. E-Z-EM also contributed $15,000, $14,000
 and $29,000 in 2007, 2006 and 2005, respectively, to a multiemployer pension
 plan for employees covered by a collective bargaining agreement. This plan is
 not administered by E-Z-EM and contributions are determined in accordance
 with provisions of negotiated labor contracts.E-Z-EM
 Canada Inc., a wholly owned subsidiary of the Company, also provides pension
 benefits to eligible employees through two Defined Contribution Plans. In
 2007, 2006 and 2005, contributions were $258,000, $251,000 and $180,000,
 respectively.-81-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE N - COMMITMENTS AND CONTINGENCIES

Operating LeasesThe Company
 is committed under non-cancelable operating leases for facilities,
 automobiles and equipment. For 2007, 2006 and 2005, aggregate rental costs
 under all operating leases were approximately $2,449,000, $2,428,000 and
 $1,766,000, respectively. Future annual operating lease payments in the
 aggregate, which include escalation clauses and real estate taxes, with
 initial remaining terms of more than one year at June 2, 2007, are summarized
 as follows:(in thousands)2008


$
1,9772009



1,8442010



1,8412011



3752012



160Thereafter



666$
6,863Purchase CommitmentsPurchase
 commitments for open purchase orders at June 2, 2007 for which goods and
 services had not been received were approximately $4,484,000.Employment ContractThe Company
 has an employment contract with its president and chief executive officer
 that is cancelable at any time, but provides for severance pay of two years
 base salary in the event such executive is terminated by the Company without
 cause, as defined in the contract. Unless cancelled earlier, the contract
 will terminate on May 31, 2010. Aggregate minimum compensation commitments
 under this contract at June 2, 2007, and relating to fiscal 2008, are
 $720,000.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 alleges that the Company
 has 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 alleges the Companys actions have
 caused, and will continue to cause, the plaintiffs to suffer substantial
 damage and irreparable injury. The complaint seeks to prohibit the Company
 from continuing to market and sell these products and asks for compensatory
 and treble money damages, reasonable attorneys fees, costs and pre-judgment
 interest. While the Company does not have to respond to the complaint until
 late August, and the parties have not recommended discovery, the Company
 believes that it has valid defenses to the infringement claims,-82-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE N - COMMITMENTS AND CONTINGENCIES
(continued)

including
 invalidity of certain claims of the 710 patent, and intends to defend the
 matter vigorously.The Company
 was named as a co-defendant in an action entitled Jeffrey Madison d/b/a
 Maqguide.com vs. Avail Medical Products, Inc. et al., Case No.
 05CC03584 filed in Superior Court for the State of California, Orange County,
 on February 28, 2005. The complaint alleged that in March 2003, the Company
 sought a contract manufacturer to manufacture and supply certain medical products
 and the Company, acting through its agent, Sopheon Corporation, solicited
 Maqguide to assist in this process. The complaint alleged that, acting on
 this information, Maqguide contacted Avail Medical Products, Inc., or Avail,
 about this opportunity and helped negotiate a final agreement between the
 Company and Avail. The complaint further alleged that Maqguide had an
 agreement with Avail that required Avail to pay a commission to Maqguide upon
 the execution of the agreement with the Company. The complaint alleged 18
 causes of action against all of the defendants, including breach of contract,
 breach of the covenant of good faith, quantum meruit, fraud and deceit,
 promissory estoppel, conspiracy and conversion. The complaint sought
 compensatory, punitive and other monetary damages in an unspecified amount in
 excess of $25,000. This matter has been settled for $20,000, of which the
 Company was responsible for $10,000, and a notice of dismissal with prejudice
 was entered into the court on June 26, 2006.AngioDynamics
 and E-Z-EM were named as co-defendants in an action entitled Duhon,
 et. al vs. Brezoria Kidney Center, Inc. et. al, case no. 27084 filed
 in the District Court of Brezoria County, Texas, 239th Judicial
 District on December 29, 2003. The complaint alleged that AngioDynamics and
 its co-defendants, E-Z-EM and Medical Components, Inc. or Medcomp, designed,
 manufactured, sold, distributed and marketed a defective catheter that was
 used in the treatment of, and caused the death of, a hemodialysis patient, as
 well as committed other negligent acts. The complaint sought compensatory and
 other monetary damages in unspecified amounts. Under AngioDynamics
 distribution agreement with Medcomp, Medcomp was required to indemnify
 AngioDynamics against all its costs and expenses, as well as losses,
 liabilities and expenses (including reasonable attorneys fees) that relate
 in any way to products covered by the agreement, and Medcomp accepted the
 defense of the action. This matter has been settled and an order for
 dismissal with prejudice was entered into the court on August 5, 2005.In
 accordance with the Master Separation and Distribution Agreement between
 AngioDynamics and E-Z-EM, AngioDynamics has agreed to indemnify E-Z-EM from
 any claims that arise out of the business operations of AngioDynamics prior
 to its spin-off (October 30, 2004) in which E-Z-EM is a named defendant
 solely because E-Z-EM was the sole stockholder of AngioDynamics.The Company
 is party to other claims, legal actions and complaints that arise in the
 ordinary course of business. The Company believes that any liability that may
 ultimately result from the resolution of these matters will not, individually
 or in the aggregate, have a material adverse effect on its financial position
 or results of operations.-83-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE N - COMMITMENTS AND CONTINGENCIES
(continued)

Concentration of Credit RiskThe
 Companys exposure to credit risk is dependent, to a certain extent, on the
 healthcare industry. The Company performs ongoing credit evaluations of its
 customers and does not generally require collateral; however, in certain
 circumstances, the Company may require letters of credit from its customers.In November
 2005, Merry X-Ray Corporation (Merry X-Ray), a significant distributor of
 the Companys products in the United States, acquired SourceOne Healthcare
 Technologies, Inc. (SourceOne), the Companys largest distributor in the
 United States. In 2007, 2006 and 2005, sales of products to Merry X-Ray,
 including sales to SourceOne before its acquisition by Merry X-Ray,
 represented 33%, 36% and 38% of total sales, respectively. Approximately 35%
 and 39% of accounts receivable pertained to Merry X-Ray at June 2, 2007 and
 June 3, 2006, 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.In 2007,
 2006 and 2005, purchases of finished products from Coeur, Inc. represented
 11%, 12% and 13%, respectively, and purchases of finished product from Avail
 Medical Products, Inc. represented 6%, 10% and 11%, respectively, of total
 purchases.NOTE O  COMMON STOCKAngioDynamics Initial Public OfferingOn May 27,
 2004, AngioDynamics, the Companys former subsidiary, sold 1,950,000 shares
 of its common stock at $11.00 per share through an initial public offering
 (IPO). Proceeds of $19,949,000 from the IPO, net of certain financing
 costs, were received by AngioDynamics on June 2, 2004. At May 29, 2004, the
 Company owned 9,200,000 shares, or 82.5% of the 11,150,000 shares
 outstanding. At May 29, 2004, the Company recorded a credit to common stock
 and additional paid-in capital of $12,174,000, which was net of financing
 costs of $1,279,000 and minority interest of $6,496,000. On June 15, 2004,
 the underwriters of the IPO exercised their over-allotment option and
 acquired 292,500 shares at $11.00 per share, less underwriting discounts and
 commissions, and on June 18, 2004, AngioDynamics received net proceeds of
 $2,992,000. At June 15, 2004, the Companys ownership interest in
 AngioDynamics decreased to 80.4%. From May 30, 2004 through October 30, 2004,
 the date on which the Company completed its spin-off of AngioDynamics, the
 Company recorded a credit to common stock and additional paid-in capital of
 $1,442,000, which was net of financing costs of $225,000 and minority
 interest of $1,325,000.-84-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE O  COMMON STOCK (continued)

AngioDynamics Spin-offIn February
 2004, the Company received a favorable private letter ruling from the
 Internal Revenue Service regarding the tax-free treatment of the distribution
 of E-Z-EMs remaining ownership in AngioDynamics. On October 30, 2004, the
 Company made a tax-free, pro rata distribution of its 9,200,000 shares of
 AngioDynamics common stock to E-Z-EM shareholders of record as of October 11,
 2004 (the Record Date). Based on the shares outstanding of each company on
 the Record Date, E-Z-EM shareholders received .856377 of a share of
 AngioDynamics stock for each share of E-Z-EM stock they owned on the Record
 Date.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 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.Cash DividendsIn June
 2004, the Companys Board of Directors declared a cash dividend of $.30 per
 outstanding share on the Companys common stock. The dividend, which
 aggregated $3,220,000, was distributed on July 1, 2004 to shareholders of
 record as of June 15, 2004. Future dividends are subject to Board of
 Directors review of operations and financial and other conditions then
 prevailing.-85-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE P  STOCK COMPENSATION PLANS

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 June 2, 2007, there were 695,675 shares
 available for grants of options and other awards under the 2004 Plan.1983 Stock Option PlanIn 1983, the
 Company adopted the 1983 Stock Option Plan (the 1983 Plan). The 1983 Plan
 provides for the grant to key employees of both nonqualified stock options
 and incentive stock options. A total of 2,041,628 shares (giving effect to
 the reallocation of 576,346 shares to the 2004 Plan) of the Companys common
 stock may be issued under the 1983 Plan pursuant to the exercise of options.
 All outstanding stock options have an exercise price of not less than the
 market value of the shares on the date of grant. Outstanding options are
 exercisable over a period of time designated by the administrators of the
 1983 Plan (but not more than 10 years from the date of grant) and are subject
 to such other terms and conditions as the administrators have determined. No
 further options will be issued under the 1983 Plan.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.-86-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE P - STOCK COMPENSATION PLANS (continued)

In
 connection with the completion of the AngioDynamics spin-off on October 30,
 2004, all outstanding stock options (E-Z-EM Pre-spin Options) were adjusted
 (the E-Z-EM Post-spin Options) and AngioDynamics options (the
 AngioDynamics Post-spin Options and together with the E-Z-EM Post-spin
 Options, the Replacement Options) were issued to holders of the E-Z-EM
 Pre-spin Options.The exercise
 price and the number of shares subject to each of the Replacement Options was
 established pursuant to a formula designed to ensure that: (1) the aggregate
 intrinsic value (i.e., the difference between the exercise price of the
 option and the market price of the common stock underlying the option) of
 each Replacement Option did not exceed the aggregate intrinsic value of the
 outstanding E-Z-EM Pre-spin Option that was replaced by such Replacement
 Option immediately prior to the spin-off and (2) the ratio of the exercise
 price of each option to the market value of the underlying stock immediately
 before and after the spin-off was preserved.Substantially
 all of the other terms and conditions of each Replacement Option, including
 the time or times when, and the manner in which, the option is exercisable,
 the duration of the exercise period, the permitted method of exercise,
 settlement and payment, the rules that apply in the event of the termination
 of employment of the employee, are the same as those of the replaced E-Z-EM
 Pre-spin Option, except that (1) in some cases, the exercise period of the
 AngioDynamics Post-spin Option is shorter than the exercise period of the
 E-Z-EM Pre-spin Option and (2) option holders who are employed by one company
 are permitted to exercise options to acquire shares in the other company as
 if such holder was an employee of such other company.The fair
 value of options granted is estimated on the date of grant using the
 Black-Scholes option-pricing model based on the following weighted-average
 assumptions for all plans:2007

2006

2005Expected
 life (years)

5.9


5.0


5.0Expected
 volatility

50.60
%

48.90
%

49.48
%Risk-free
 interest rate

4.86
%

4.25
%

3.47
%Dividend
 yield

None

None

NoneThe 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-87-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE P  STOCK COMPENSATION PLANS (continued)

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.The following is a summary of the stock option activity during 2007,
 2006 and 2005:Number of
 Shares
 (000)
 
 Weighted
 Average
 Exercise
 Price
 
 Weighted
 Average
 Remaining
 Contractual
 Life in
 Years
 
 Aggregate
 Intrinsic
 Value
 (000)2007Outstanding at beginning of
period
 
 
 
 1,358
 
 
 
 $
 12.23
 
 
 
 
 7.65Granted
 
 
 
 35
 
 
 
 $
 16.69
 
 
 
 
 10.00Exercised
 
 
 
 (106
 )
 
 
 $
 11.00
 
 
 
 
 6.40Forfeited
 
 
 
 (8
 )
 
 
 $
 11.88
 
 
 
 
 7.12Outstanding at end of
period
 
 
 
 1,279
 
 
 
 $
 12.45
 
 
 
 
 6.80
 
 
 
 $
 5,422Vested or expected to vest at
end of period
 
 
 
 1,244
 
 
 
 $
 12.33
 
 
 
 
 6.72
 
 
 
 $
 5,421Exercisable at end of
period
 
 
 
 1,244
 
 
 
 $
 12.33
 
 
 
 
 6.72
 
 
 
 $
 5,4212006Outstanding at beginning of
period
 
 
 
 960
 
 
 
 $
 10.32
 
 
 
 
 7.58Granted
 
 
 
 442
 
 
 
 $
 15.90
 
 
 
 
 10.00Exercised
 
 
 
 (27
 )
 
 
 $
 6.81
 
 
 
 
 3.53Forfeited
 
 
 
 (6
 )
 
 
 $
 14.27
 
 
 
 
 9.09Expired
 
 
 
 (11
 )
 
 
 $
 5.37
 
 
 
 
 0.00Outstanding at end of
period
 
 
 
 1,358
 
 
 
 $
 12.23
 
 
 
 
 7.65
 
 
 
 $
 4,812Vested or expected to vest at
end of period
 
 
 
 1,358
 
 
 
 $
 12.23
 
 
 
 
 7.65
 
 
 
 $
 4,812Exercisable at end of
period
 
 
 
 1,358
 
 
 
 $
 12.23
 
 
 
 
 7.65
 
 
 
 $
 4,8122005Outstanding at beginning of
period
 
 
 
 593
 
 
 
 $
 7.31
 
 
 
 
 4.62Granted
 
 
 
 568
 
 
 
 $
 14.01
 
 
 
 
 10.00Exercised
 
 
 
 (127
 )
 
 
 $
 3.80
 
 
 
 
 1.20Forfeited
 
 
 
 (1
 )
 
 
 $
 12.02
 
 
 
 
 9.16Expired
 
 
 
 (26
 )
 
 
 $
 4.22
 
 
 
 
 0.00Spin-off adjustment
 
 
 
 (47
 )
 
 
 
 
 
 
 
 
 5.00Outstanding at end of
period
 
 
 
 960
 
 
 
 $
 10.32
 
 
 
 
 7.58
 
 
 
 $
 4,227Vested or expected to vest at
end of period
 
 
 
 906
 
 
 
 $
 10.21
 
 
 
 
 7.49
 
 
 
 $
 4,083Exercisable at end of
period
 
 
 
 906
 
 
 
 $
 10.21
 
 
 
 
 7.49
 
 
 
 $
 4,083-88-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE P  STOCK COMPENSATION PLANS (continued)

The
 weighted-average grant-date fair value of stock options granted during 2007,
 2006 and 2005 was $8.99, $7.62 and $6.59 per share, respectively. The
 aggregate intrinsic value in the table above is before applicable income
 taxes and is based on the Companys closing stock price as of the last
 business day of the respective period. The total intrinsic value of stock
 options exercised during 2007, 2006 and 2005 was $592,000, $276,000 and
 $1,433,000, respectively.The Company
 received cash of $1,165,000, $185,000 and $384,000 from stock options
 exercised during 2007, 2006 and 2005, respectively. These cash receipts are
 included in financing activities in the accompanying consolidated statements
 of cash flows. The Company realized tax benefits from the exercise of stock
 options of $389,000, $1,228,000 and $1,358,000 during 2007, 2006 and 2005,
 respectively.On January
 17, 2005, the Companys Board of Directors accelerated the vesting of the
 outstanding unvested stock options awarded to the officers, directors and
 employees under the 2004 Plan, all of which had an exercise price greater
 than the price of the common stock on January 14, 2005. As a result of the
 acceleration, options to acquire 372,000 shares of common stock (representing
 approximately 38.6% of the total then-outstanding options under all of the
 Companys compensation plans), which otherwise would have vested from time to
 time in one-third increments in 2005, 2006 and 2007, became immediately
 exercisable. The Boards decision to accelerate the vesting of these options
 was in response to the issuance by the FASB of SFAS No. 123 (R), Share-Based
 Payment. By accelerating the vesting of these options, the Company avoided
 recognizing any compensation expense in future periods associated with these
 options. The pro forma charge relating to the accelerated options was
 $2,260,000 for 2005.Effective
 October 26, 2004, the Company extended the exercise period of expiring stock
 options of a former director who currently provides the Company with
 consulting services. During 2007, 2006 and 2005, the Company recorded
 compensation charges of $49,000, $86,000 and $427,000, respectively, in
 connection with this extension.During 2007,
 2006 and 2005, the Company issued 7,750, 7,750 and 8,000 shares,
 respectively, of common stock to members of its Board of Directors and, as a
 result, recognized share-based compensation expense of $134,000, $126,000 and
 $98,000 in 2007, 2006 and 2005, respectively. These expenses are included in
 selling, general and administrative expense in the accompanying consolidated
 statements of earnings.-89-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE P  STOCK COMPENSATION PLANS (continued)

In 1985, the
 Company adopted an Employee Stock Purchase Plan (the Employee Plan). The
 Employee Plan provides for the purchase by employees of the Companys common
 stock at a discounted price of 85% of the market value of the shares on the
 date of purchase. A total of 150,000 shares of the Companys common stock may
 be purchased under the Employee Plan. The Board of Directors in its
 discretion may terminate the Employee Plan at any time. Unless sooner
 terminated, the Employee Plan shall terminate at the time that all of the
 shares of common stock available for offer under the plan have been sold
 under the plan. During 2007, no shares were purchased by employees under this
 plan. During 2006 and 2005, employees purchased 250 and 767 shares,
 respectively. Total proceeds received by the Company approximated $3,000 and
 $10,000 during 2006 and 2005, respectively.NOTE Q - RELATED PARTIES

The Company
 has split dollar life insurance arrangements with Linda B. Stern and Betty K.
 Meyers, which were entered into in May 1998. Linda Stern is a principal
 shareholder of the Company and the widow of Howard S. Stern, a co-founder of
 the Company. Betty Meyers is a shareholder of the Company and the widow of
 Phillip H. Meyers, a co-founder of the Company. She is also the mother of
 David P. Meyers, a director and a significant shareholder of the Company. The
 Betty Meyers policy is owned by the Betty Meyers Life Insurance Trust, the
 beneficiaries of which include David P. Meyers. Through fiscal 2002, the
 Company paid approximately $100,000 annually toward the cost of each life
 insurance policy. Because of the uncertainty of the treatment of split dollar
 life insurance policies under the Sarbanes-Oxley Act of 2002, beginning in
 fiscal year 2003, the Company stopped making payments toward the cost of such
 policies and does not anticipate making any payments in the future.The Company
 has paid an aggregate of $500,000 in premiums for each policy, the proceeds
 of which, under collateral assignment agreements, will be first used to repay
 all payments made by the Company for that policy. Additionally, beneficiaries
 of the policies may not borrow against the amount paid by the Company. Linda
 Stern and Betty Meyers have agreed to repay to the Company any shortfall
 between the cash surrender value of their respective policy and the aggregate
 amount of premiums paid by the Company.At June 2,
 2007 and June 3, 2006, the cash surrender value of such policies aggregated
 $1,964,000 and $1,756,000, respectively. At June 2, 2007 and June 3, 2006,
 advances of $1,000,000 are recorded in the consolidated balance sheets under
 the caption Cash Surrender Value of Life Insurance.Two former
 directors provided consulting services to the Company and to the Companys
 benefit plans during 2007, 2006 and 2005. Fees for such services were
 approximately $247,000, $285,000 and $290,000 during 2007, 2006 and 2005,
 respectively.-90-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE R - OPERATING SEGMENT AND GEOGRAPHIC
AREA OPERATIONS

The Company
 currently operates in one reportable segment: the E-Z-EM segment. Prior to
 October 30, 2004, the Company operated in two reportable segments: the E-Z-EM
 segment and the AngioDynamics segment, through its majority-owned subsidiary,
 AngioDynamics, Inc. Effective as of October 30, 2004, E-Z-EM spun off
 AngioDynamics by distributing to E-Z-EMs shareholders 9,200,000 shares of
 AngioDynamics common stock then held by E-Z-EM. As discussed in Note B, the
 AngioDynamics segment is being reported as a discontinued operation and the
 E-Z-EM segment is being reported as the Companys continuing operations.In the
 E-Z-EM segment, the Company develops, manufactures and markets medical
 devices and contrast products used by radiologists, gastroenterologists and
 speech language pathologists primarily in screening for and diagnosing
 diseases and disorders of the GI tract. Products in this segment 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. The
 entire business is focused in the following general areas: CT imaging, X-ray
 fluoroscopy, contract manufacturing, virtual colonoscopy, accessory medical
 devices, healthcare decontaminants and gastroenterology. The Companys
 primary business activity is conducted with radiologists, gastroenterologists
 and speech language pathologists primarily in hospitals throughout the United
 States and with distributors outside of the United States.-91-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE R - OPERATING SEGMENT AND GEOGRAPHIC
AREA OPERATIONS (continued)

Geographic AreasThe
 following geographic area data includes net sales generated by and long-lived
 assets employed in operations located in each area:2007

2006

2005(in thousands)Net salesU.S.
operations

$
111,661

$
111,511

$
90,436International
operations:Canada


50,670


55,912


37,253Other


15,169


12,120


10,633Eliminations


(39,660
)

(42,460
)

(26,622
)Total net
 sales

$
137,840

$
137,083

$
111,700Long-lived
 assetsU.S.
operations

$
8,929

$
6,957

$
7,764International
operations:Canada


11,622


9,941


9,752Other


235


194


244Total
 long-lived assets

$
20,786

$
17,092

$
17,760Net Sales by Major Product LinesThe
 following table sets forth net sales to external customers by major product
 lines:2007

2006

2005(in thousands)CT Imaging
 Contrast

$
36,106

$
36,047

$
28,115CT Injector
 Systems


28,062


23,088


17,551Total CT
Imaging


64,168


59,135


45,666X-Ray
 Fluoroscopy


43,722


43,830


39,295Contract
 Manufacturing


9,415


12,561


9,183Virtual
 Colonoscopy


5,471


4,140


3,654Accessory
 Medical Devices


5,239


5,235


5,328Gastroenterology


4,361


5,019


4,627Healthcare
 Decontaminants


1,290


3,506


956Other


4,174


3,657


2,991$
137,840

$
137,083

$
111,700-92-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE S - QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)

Quarterly
 results of operations for 2007 and 2006 were as follows:2007First
 quarter

Second
 quarter

Third
 quarter

Fourth
 quarter(in thousands, except per share data)Net sales

$
33,440

$
34,171

$
33,558

$
36,671Gross profit


14,591


15,289


14,186


17,128Earnings from continuing
operations


1,783


1,818


2,183


2,778Earnings (loss) from
discontinued operation


(221
)

(14
)

216Net earnings


1,562


1,804


2,399


2,778Basic earnings (loss) per common
shareFrom continuing
operations


0.16


0.17


0.20


.25From
discontinued operation, net of income
 tax provision


(0.02
)




0.02From total
operations


0.14


0.17


0.22


.25Diluted earnings (loss) per
common shareFrom continuing
operations


0.16


0.16


0.20


.25From
discontinued operation, net of income
 tax provision


(0.02
)




0.02From total
operations


0.14


0.16


0.22


.252006First
 quarter

Second
 quarter

Third
 quarter

Fourth
 quarter(in thousands, except per share data)Net sales
(1)

$
34,394

$
33,786

$
32,096

$
36,807Gross profit
(1)


15,682


15,121


12,706


15,598Earnings from continuing
operations


2,543


1,554


2,365


1,593Earnings (loss) from
discontinued operation


10


(29
)

1,977


(247
)Net earnings


2,553


1,525


4,342


1,346Basic earnings per common
shareFrom continuing
operations


0.24


0.14


0.22


0.14From
discontinued operation, net of income
 tax provision








0.18


(0.02
)From total
operations


0.24


0.14


0.40


0.12Diluted earnings per common
share (2)From continuing
operations


0.23


0.14


0.21


0.14From
discontinued operation, net of income
 tax provision








0.18


(0.02
)From total
operations


0.23


0.14


0.39


0.12-93-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 2, 2007, June 3, 2006 and May 28, 2005

NOTE S - QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED) (continued)

(1)
Reclassified
 to reflect the Japanese discontinued operation described in Note B.(2)
The sum of
 the quarters does not equal the fiscal year due to rounding and changes in
 the calculation of weighted average shares.During the
 fourth quarter of 2006, the Company recorded net sales of $496,000 and
 pre-tax earnings of $319,000 ($223,000 after-tax or $0.02 per diluted share),
 relating to an adjustment of sales and related earnings at its subsidiary in
 the United Kingdom (the UK Subsidiary) for the first three quarters of 2006
 (the UK Subsidiary Adjustment). The
 UK Subsidiary Adjustment resulted from misconduct by certain local
 operational and financial management personnel to misrepresent financial
 results in order to closely align actual operating results with budget. The accounting irregularity was identified
 in July 2006, by the Companys independent registered public accounting
 firm. The Company immediately began
 an internal investigation and determined that sales and net earnings of the
 UK Subsidiary were under-reported in the first three quarters of 2006, that
 the cumulative effect of these adjustments was recorded in the fourth quarter
 of 2006 (i.e., the UK Subsidiary Adjustment) and that the annual results for
 2006 were properly reported. It was
 also determined that a similar irregularity affected the second and third
 quarters of 2005. However, the annual
 results for 2005 were properly reported.
 All involved personnel were first suspended pending a disciplinary
 hearing to determine appropriate disciplinary action, and then terminated. The Company believes that all accounting
 irregularities have been identified, corrective action taken and that the UK
 Subsidiary Adjustment captures all necessary adjustments required to reflect
 the proper accounting treatment.
 After consideration of the qualitative and quantitative factors, the
 Company determined that the effects of these accounting irregularities were
 not material to any prior reporting period.-94-

E-Z-EM, Inc. and Subsidiaries

SCHEDULE II -
VALUATION AND QUALIFYING ACCOUNTS(in thousands)
Column
 A

Column
 B

Column
 C

Column
 D

Column
 EAdditions(1)

(2)Description

Balance
 at
 beginning
 of period

Charged
 to
 costs and
 expenses

Charged
 to
 other
 accounts-
 describe

Deductions-
 describe

Balance
 at end
 of
 periodAllowance for doubtful
accountsFifty-two weeks ended May 28,
2005


$
819



$
111






$
93
(a)


$
837Fifty-three weeks ended June 3,
2006


$
837



$
78






$
27
(a)


$
888Fifty-two weeks ended June 2,
2007


$
888



$
83






$
43
(a)


$
928Rebate
allowanceFifty-two weeks ended May 28,
2005


$
1,611



$
21,949






$
22,163
(b)


$
1,397Fifty-three weeks ended June 3,
2006


$
1,397



$
25,855






$
25,386
(b)


$
1,866Fifty-two weeks ended June 2,
2007


$
1,866



$
26,858






$
26,642
(b)


$
2,082(a)
Amounts written off as
 uncollectible.(b)
Represents rebate credits
 issued.-95-