UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549 FORM
10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal
year ended June 3, 2006 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 1-11479 E-Z-EM,
  Inc.(Exact name of
  registrant as specified in its charter)  Delaware
  
  11-1999504(State or other jurisdiction
  of
  
  (I.R.S. Employerincorporation or
  organization)
  
  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. o

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act (Check one).

Large accelerated
filer o     Accelerated
filer x     Non-accelerated
filer o

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

Yes o       No
x

The aggregate market value of the registrants common
stock held by non-affiliates on December 2, 2005, the last business day of the
registrants most recently completed second fiscal quarter, was approximately
$167,377,000. Such aggregate market value is computed by reference to the
closing sale price of the registrants common stock as reported on the Nasdaq
National Market on such date.

As of August 1, 2006, there were 10,868,374 shares of
the registrants common stock outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the Proxy Statement for the registrants 2006 Annual Meeting of Stockholders
to be held October 17, 2006 are incorporated by reference in Part III of this
Form 10-K Report.

-2-

E-Z-EM,
Inc. and Subsidiaries

INDEX

PagePart I:Item 1.
  Business
  4Item 1A.
  Risk
  Factors
  18Item 1B.
  Unresolved
  Staff Comments
  23Item 2.
  Properties
  23Item 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
  25Item 6.
  Selected
  Financial Data
  26Item 7.
  Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  27Item 7A.
  Quantitative
  and Qualitative Disclosures About Market Risk
  39Item 8.
  Financial
  Statements and Supplementary Data
  40Item 9.
  Changes
  in and Disagreements with Accountants on Accounting and Financial Disclosure
  40Item 9A.
  Controls
  and Procedures
  40Item 9B.
  Other
  Information
  43Part III:Item 10.
  Directors
  and Executive Officers of the Registrant
  44Item 11.
  Executive
  Compensation
  48Item 12.
  Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters
  52Item 13.
  Certain
  Relationships and Related Transactions
  54Item 14.
  Principal
  Accountant Fees and Services
  55Part IV:Item 15.
  Exhibits
  and Financial Statement Schedules
  56-3-

Part I

Item 1.
  Business(a)
  General Development of BusinessOverview

E-Z-EM, Inc. is a leading provider of medical products
used by radiologists, gastroenterologists and speech language pathologists primarily
in screening for and diagnosing diseases and disorders of the gastrointestinal
(GI) tract. We develop, manufacture and market medical diagnostic products used
for colorectal cancer screening, evaluation of swallowing disorders
(dysphagia), and testing for other diseases and disorders of the GI system.
Additionally, we sell our Reactive Skin Decontamination Lotion (RSDL) product -
a liquid skin decontaminant that breaks down chemical agents such as Sarin or
VX in seconds, leaving a non-toxic liquid that can be washed away with water 
to the Canadian armed forces and branches of a number of other armed forces in
the U.S., Europe and elsewhere. We also leverage our capacities in
manufacturing, automation and quality control by offering contract manufacturing
to third-party businesses.

We have been in business for more than 44 years. 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 2006, our net sales increased 22%, or
$25,294,000, to $138,369,000 due to organic sales growth, a liquid barium
product recall by Mallinckrodt, our major U.S. competitor, an additional week
in fiscal 2006 compared to fiscal 2005, and price increases. The Mallinckrodt
recall resulted in net sales

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-

increases in both the CT imaging and X-ray fluoroscopy
product categories. Price increases accounted for approximately 21⁄2% of net
sales for fiscal 2006, as a significant portion of our domestic products are
sold under long-term group purchasing organization contracts. On a product line
basis, the net sales increase for fiscal 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
$4,446,000, contract manufacturing products of $3,378,000, defense
decontaminant products of $2,550,000, and all other products of $1,451,000.

In February 2006, the Executive Committee of our Board
of Directors approved a plan to wind down and close the operations of Toho
Kagaku Kenkyusho Co., Ltd. (Toho), a wholly owned Japanese subsidiary. We
decided to close Toho because we were unable to generate income from operations
to grow the business due to a limited product offering and the scope of Tohos
operations. Also, a recent change in manufacturing location required us to
re-register Tohos principal products with the Japanese regulatory authorities,
which we projected would cause an interruption of supply during the first
quarter of 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.

On December 28, 2005, Howard
Stern, a co-founder of our company, passed away. Mr. Stern contributed many innovations
to the field of radiology in his more than 40 years of leadership of E-Z-EM, in
the process establishing our company as a recognized name among radiologists
around the world. At the time of his death, Mr. Stern was a director of our
company and Chairman Emeritus. Mr. Stern also served as our Chairman of the
Board, President and Chief Executive Officer at various times since the
companys founding in 1961.

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
  Accessory Medical Devices
  Gastroenterology
  Virtual Colonoscopy
  Defense Decontaminants-5-

Virtually all of our products are cleared for sale in
the U.S. Certain products are cleared for sale in the European Community, Japan
and other countries.

The following table sets forth revenues from external
customers for the last three years:

2006
  
  2005
  
  2004$
  
  %
  
  $
  
  %
  
  $
  
  %(dollars in thousands)CT Imaging
  Contrast
  
  $
  36,047
  
  
  26.0
  
  $
  28,115
  
  
  24.9
  
  $
  21,125
  
  
  21.0CT Injector
  Systems
  
  
  23,088
  
  
  16.7
  
  
  17,551
  
  
  15.5
  
  
  13,273
  
  
  13.2Total CT
  Imaging
  
  
  59,135
  
  
  42.7
  
  
  45,666
  
  
  40.4
  
  
  34,398
  
  
  34.2X-Ray
  Fluoroscopy
  
  
  45,095
  
  
  32.6
  
  
  40,649
  
  
  36.0
  
  
  40,810
  
  
  40.6Contract
  Manufacturing
  
  
  12,561
  
  
  9.1
  
  
  9,183
  
  
  8.1
  
  
  8,054
  
  
  8.0Accessory Medical
  Devices
  
  
  5,235
  
  
  3.8
  
  
  5,328
  
  
  4.7
  
  
  5,351
  
  
  5.3Gastroenterology
  
  
  5,019
  
  
  3.6
  
  
  4,627
  
  
  4.1
  
  
  4,246
  
  
  4.2Virtual
  Colonoscopy
  
  
  4,140
  
  
  3.0
  
  
  3,654
  
  
  3.2
  
  
  3,698
  
  
  3.7Defense
  Decontaminants
  
  
  3,506
  
  
  2.5
  
  
  956
  
  
  0.8
  
  
  1,164
  
  
  1.1Other
  
  
  3,678
  
  
  2.7
  
  
  3,012
  
  
  2.7
  
  
  2,888
  
  
  2.9$
  138,369
  
  
  100.0
  
  $
  113,075
  
  
  100.0
  
  $
  100,609
  
  
  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 the National
Institute of Diabetes and Digestive and Kidney Diseases, 60 to 70 million
people each year are affected by digestive disease, leading to more than
234,000 deaths (including deaths resulting from cancer), 14 million
hospitalizations (equal to 13 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 is expected to account for nearly 55,170
deaths and 148,610 newly diagnosed cases 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-6-

Society estimates that less than 50% of the people
  age 50 or over in the United States have had a recent test.
  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 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, and we are focused on finding
solutions to capitalize on this trend. In 2005, sales of CT products surpassed
those of our X-ray fluoroscopy products for the first time in our history, and
these products now represent our largest product group.

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. CT examination is significantly
more expensive than X-ray fluoroscopy but the benefit of the information
content outweighs any incremental cost of the technology over X-ray
fluoroscopy. 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.

We believe we have the most comprehensive line of
barium sulfate formulations for thoracic, abdominal and pelvic CT scanning. We
market 11 formulations under our Esopho-CAT®, E-Z-CAT®
and Readi-CAT® Smoothie lines. Early in 2005, we introduced
VoLumen, the next generation, low-density barium sulfate suspension for use as
an oral contrast in Multidetector 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
EDA 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.

-7-

In November 2005, we introduced our IRiSCT
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 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 helps consolidate data from the entire radiology department that
radiology administrators can access from their offices. We believe that IRiSCT
represents a significant improvement from the traditional injector technology
applications, and offers us an important differentiation from the competition.

Based upon sales, we believe that we are the leading
manufacturer of oral CT barium contrast media and the second largest
manufacturer of CT injectors in the U.S.

X-Ray
Fluoroscopy

GI X-ray contrast media has been our principal
business for more than 44 years. 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 in the U.S. We market approximately 30 fluoroscopy
formulations. Formulations focus on five key areas - 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, 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 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.-8-


  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.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 Trap, E-Z-Guard
mouthpieces, Visipace electrogastrogram analyzer, as well as other medical
devices. We also market several virtual colonoscopy products, including the
LoSo Prep bowel cleanser and the NutraPrep 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 Score
Breath Meter. H2 Score is a convenient hand-held screening tool for
lactose malabsorption. In May 2006, we announced the launch of CO2EFFICIENT
Endoscopic Insufflator, a new device for insufflating the upper and lower
gastrointestinal tract with carbon dioxide (CO2) gas. Based on our
popular PROTOCO2L 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.

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) 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 trademarked products:


  PROTOCO2L is an automated
  insufflation system that delivers carbon dioxide into the colon to achieve
  optimal distention for better visualization and greater patient comfort;
  Tagitol V 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;
  NutraPrep is a 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. NutraPrep is covered by U.S. Patent No. 6,866,873 that was issued
  on March 15, 2005;
  LoSo Prep is a relatively mild, low
  sodium, patient colon cleanser. LoSo Prep and other E-Z-EM laxative products
  are marketed to radiologists and-9-

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
  InnerviewGI 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., which
  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.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. Recently, the American College of Radiology has been
successful in obtaining approval for reimbursement for diagnostic VC for failed
colonoscopies and other specific conditions in most states. The reimbursement
conditions vary from state to state as do the reimbursement amounts. Federal
reimbursement for screening VC in North America is heavily dependent on the
conclusion and favorable outcome of the ACRIN II trial, a multi-center trial
that began in 2005 and is expected to be completed by the end of calendar 2006.

Defense
Decontaminants

Our product offering is Reactive Skin Decontamination
Lotion (RSDL), a liquid decontaminant that reacts very rapidly with chemical
warfare (CW) agents, including VX nerve agent. RSDL neutralizes these agents
within a matter of seconds or minutes, leaving a non-toxic residue that can be washed
off. RSDL is currently used by all service branches of the Canadian Forces, as
well as select groups within the armed forces of Australia, Belgium, Ireland,
Holland, New Zealand, Sweden and Slovenia. The U.S. Army is currently
conducting final testing of RSDL. In March 2003, the U.S. Food and Drug
Administration (FDA) issued a 510(k) clearance for RSDL. Developed by Defense
Research and Development Canada (DRDC) and licensed to us through a third-party
by the Canadian government, on a worldwide basis, for the military,
first-responder and first-receiver markets, RSDL is patented in the U.S.,
Canada and more than a dozen European countries. In April 2006, we announced
that the fiscal year 2007
(October 1st to September 30th) Federal Budget request
includes a U.S. Department of Defense (DoD) request for RSDL. The order amount
for the U.S. governments fiscal year 2007 is shown as $9.6 million for 174,628
RSDL combat kits and 123,779 training lotion kits. This award is subject to
Congressional approval of the Federal Budget and a decision by the U.S. DoD to
begin procurement of the product.

We also serve as a contract manufacturer of a non-RSDL
decontaminant.

Other

Revenues from our Other product category totaled
2.7%, 2.7% and 2.9% of net sales in 2006, 2005 and 2004, respectively. This
category consists primarily of freight charges billed to customers,
miscellaneous products distributed through our foreign operations and royalty
income.

-10-

Research
and Development and Engineering

We believe that the success of our business is due to
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 10-person Research and
Development (R&D) department and an 11-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 all 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 also 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.

We are jointly developing with Berlex Laboratories, a
U.S. affiliate of Schering AG, the ULTRAVIST® Glass Pre-filled
Cartridge (PFC), a pre-filled contrast syringe loaded with ULTRAVIST
(iopromide) injection, for use with our EmpowerCT® injector system.
The program was originally expected to be completed in 2006, but is currently
delayed pending the appropriate regulatory filings by Berlex.

In November 2005, we demonstrated as a
works-in-progress a new blood analyzer to be marketed under the trade name EZ
CHEM. EZ CHEM is a convenient point-of-care device for conducting
blood assays in the CT suite prior to certain imaging procedures. We are
developing the product in conjunction with Nova Biomedical, and have exclusive
rights to market the product to radiologists and gastroenterologists in North
America, with additional marketing rights worldwide. Application to the FDA for
regulatory clearance for the product was originally expected in the 3rd
quarter of 2006, but is now expected to be completed in 2007.

Our research and development (R&D) expenditures
totaled $5,983,000, $5,494,000, and $4,467,000 in 2006, 2005 and 2004,
respectively. As a percentage of sales,

-11-

our R&D expenditures were 4.3%, 4.8% and 4.4% in 2006,
2005 and 2004, respectively. We expect R&D expenditures to continue at or
exceed current amounts.

Sales
and Marketing

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

In North America, our products are marketed through a
44-person sales force (including five 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 where 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 U.S. 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 U.S. through a network of
approximately 150 distributors.

Outside North America, our products are marketed
through a 17-person sales force. We market and distribute directly in the
United Kingdom and Benelux, reaching major hospitals in these markets. In 2006,
we announced our intention to close our subsidiary in Tokyo, Japan and to exit
this market, a process that we expect to complete in 2007. We use independent
distributors in other markets, such as GE Medical in Central and Eastern
Europe, Bracco in Italy, and Astra in Scandinavia. Significant sales are made
in the United Kingdom, Holland, Italy, Japan, Australia, Belgium, Sweden,
Germany, South Korea and South Africa. 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.

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 U.S., Canada and certain European countries. We face competition in the
domestic contrast systems market primarily from Mallinckrodt, a division of
Tyco International Ltd., GE Healthcare, a segment of General Electric Co., and
Bracco. Significant competition exists outside of the U.S. 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 complement, as well as compete with, more invasive procedures
such as colonoscopy and endoscopy. These latter two procedures involve direct
visual

-12-

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 medical device radiology
market, which is highly competitive. 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
Mallinckrodt. 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

In November 2005, Merry X-Ray Corporation (Merry
X-Ray), a significant distributor of our products in the U.S., acquired
SourceOne Healthcare Technologies, Inc. (SourceOne), our largest distributor
in the U.S. Sales of products to Merry X-Ray, including sales to SourceOne
before its acquisition by Merry X-Ray, represented 36% of our total net sales
for 2006.

Backlog

At July 31, 2006, we had a backlog of unfilled
customer orders of $3,061,000, compared to a backlog of $7,056,000 at July 31,
2005. The unusually high backlog at July 31, 2005 was due to increased sales
order bookings, resulting from the Mallinckrodt recall, and the timing of
contract manufacturing orders. The backlog figures represent sales less
estimated rebates. We expect all backlog at July 31, 2006 will be filled during
2007. 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 several European and U.S. manufacturers.
E-Z-EM Canada Inc., our wholly owned subsidiary, which operates a barium
sulfate mine and processing facility in Nova Scotia and whose reserves are
anticipated to 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 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
U.S., 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

-13-

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 not 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 U.S. patent applications or that we were 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 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.

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.

-14-

We believe that a good trademark can help establish
brand recognition and awareness for our company and our products. We file and
prosecute trademark applications in jurisdictions where we believe that
registered trademark protection is effective and advisable. We have registered
numerous trademarks in the U.S. and certain foreign jurisdictions. Because the
registration of trademarks in the U.S. 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 do the laws of the U.S. 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 U.S., 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 approvals are
granted for a drug or device, the products and their 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 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,

-15-

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.

In 2005, we had two unrelated product recalls. The
first was due to the incomplete or inadequate joint weld on a ceiling mount
used with our Empower CT injector. This recall was completed in 2006.

The second incident involved the recall of Evacupaste.
This product was manufactured for us by Mallinckrodt, a division of Tyco
International Ltd, and was part of the overall recall of their liquid barium
products in December 2004. The Evacupaste recall was completed in 2006. This
product was discontinued by Mallinckrodt.

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 U.S. 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 U.S. that are not approved or cleared by the FDA for use in
the U.S., 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. 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

-16-

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 and 13485 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 broad 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 3, 2006, we employed 611 persons, 186 of
whom were covered by various collective bargaining agreements. Collective
bargaining agreements covering 24 and 160 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 33% of our sales for 2006 from
customers outside the U.S. 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 to local customers, which are
made by our subsidiaries in Canada, the United Kingdom, Holland and Japan, are
billed in their local currency.

As of June 3, 2006, 403 of our employees are involved
in the developing, manufacturing and marketing of our products outside of the
U.S. Of this amount, 302 employees are based at our Canadian subsidiary
supporting most of

-17-

our worldwide manufacturing requirements. Our product
lines are marketed through approximately 139 foreign distributors to customers
in 84 countries outside of the U.S.

The net sales of each geographic area and the
long-lived assets attributable to each geographic area are set forth in Note S
to the 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
  FactorsThe risks described below are not the only ones we
face. Our business is also subject to the risks that affect many other
companies in our industry, such as competition, technology, results of pending
or future clinical trials, overall economic conditions, general market
conditions, foreign currency exchange rate fluctuations and international
operations. Additional risks not currently known to us or that we believe are
immaterial also may impair our business operations and our liquidity.

Our
pricing flexibility is constrained by the formation of large Group Purchasing
Organizations.

Our pricing flexibility is constrained by the
formation of 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.
Several GPOs have executed contracts with our market competitors that exclude
us, and other GPOs may do so in the future. In many cases, we have continued to
sell to individual members of these GPOs on a direct basis by lowering our
prices. However, if the GPOs enforce these contracts against the GPO members,
it may adversely affect our sales in the future.

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.

While we
carry insurance for natural disasters and business interruption, the occurrence
of such an event could result in losses that exceed the amount of our insurance
coverage. Replacing or repairing our Canadian facility and certain
manufacturing equipment would be difficult and could entail substantial
replacement lead-time and expense. Also, if we are unable to adequately supply
our core products to our customers, we could lose market share even after
resuming operations.

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 from our
Canadian subsidiary for sale in the U.S. and for export outside of the U.S.
Consequently, we are exposed to the effects of changes in the Canadian

-18-

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. As such, the market dynamics and competitive environment 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-

One
distributor accounted for approximately 36% of our net sales in 2006, 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 2006,
the combined entity was responsible for approximately 36% 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 Reactive Skin Decontamination Lotion product is
uncertain, and sales in this market are subject to complex governmental
procedures.

The market potential for Reactive Skin Decontamination
Lotion (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, assuming RSDL is adopted,
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 impact 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;
  accurately assess customer needs;-20-


  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 take
precautionary steps to protect our technological advantages and intellectual
property. 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 is presently conducting the National CT
Colonograph Trial, also know 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 study to be completed late
in calendar 2006 and the results published in 2007. Although we believe that a
favorable outcome in this study is pivotal to obtaining screening reimbursement

-21-

for virtual colonoscopy in the U.S., 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 U.S. and in foreign countries where they are sold. Unless an exemption
applies, each medical device product that we wish to market in the U.S. 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. Although we have obtained 510(k)
clearances for our current products, our 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 similarly require approval
or clearance prior to our marketing or selling products in those countries. If
we are unable to obtain additional clearances or approvals needed to market
existing or new products in the U.S. 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.We are unable to predict whether 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 U.S. and foreign
healthcare systems that could have an adverse effect on our business.

-22-

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 is covered under existing third-party coverage policies, reimbursement
for these applications may not be attained or may be significantly delayed.

Outside of the U.S., 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 U.S. If adequate levels of
reimbursement from third-party payors outside of the U.S. are not obtained,
sales of our products outside of the U.S. 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.

Even if the distribution of AngioDynamics stock in the
spin-off otherwise qualifies as tax-free, it may be disqualified as tax-free to
us (but not to our stockholders who received the AngioDynamics stock) under
Section 355(e) of the Internal Revenue Code if the distribution is part of a
plan or series of related transactions pursuant to which 50% or more of the
stock of AngioDynamics or E-Z-EM is acquired by one or more third parties. For
this purpose, acquisitions of our or AngioDynamics stock within two years
before or after the distribution are presumed to be part of such a plan,
although we or AngioDynamics might be able to rebut that presumption. If such
an acquisition of our or AngioDynamics stock triggers the application of
Section 355(e), we would recognize taxable gain on the distribution, but the
distribution would generally be tax-free to our stockholders.

Item 1B.
  Unresolved
  Staff CommentsNone.

Item 2.
  PropertiesOur global headquarters, located in Lake Success, New
York, consist of leased offices aggregating 25,608 square feet. We also lease a
70,800 square-foot

-23-

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 ProceedingsWe were 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, we
sought a contract manufacturer to manufacture and supply certain medical
products and, acting through our 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 us 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 us. 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 we were responsible for $10,000, and a notice of
dismissal with prejudice was entered into the court on June 26, 2006.

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.

-24-

Part II

Item 5.
Market for Registrants Common
  Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesEffective April 12, 2005, our common stock began
trading on the Nasdaq National Market (and since July 1, 2006, on The Nasdaq Global
Market tier of The Nasdaq Stock Market LLC) under the symbol EZEM.  Previously, our common stock was traded on
the American Stock Exchange (AMEX) under the symbol EZM.  The following table sets forth, for the
periods indicated, the high and low sales prices of the common stock as
reported by the AMEX (through April 11, 2005) and the Nasdaq National Market
(from April 12, 2005 through June 3, 2006).

Sales PricesHigh

LowFifty-three weeks ended June 3,
  2006Fourth Quarter

$
22.93

$
15.00Third Quarter


26.59


19.38Second Quarter


20.97


13.30First Quarter


15.62


13.30Fifty-two weeks ended May 28, 2005Fourth Quarter

$
14.84

$
11.31Third Quarter


15.58


12.25Second Quarter (1)


21.45


10.76First Quarter


19.94


13.50(1)
During the second quarter, we completed the spin-off
  of our subsidiary, AngioDynamics, Inc., to our shareholders by means of a
  tax-free distribution.Holders of Record

As of August 1, 2006, there were 375 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 2004, our Board of
Directors declared a cash dividend on our common stock at the rate of $.25 per
share.  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.  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 2006,
no shares were repurchased under this program.
In aggregate, we have repurchased 74,234 shares of common stock for
approximately $716,000 under this program.

-25-

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-three weeks
ended June 3, 2006 and the fifty-two weeks ended May 28, 2005 and May 29, 2004,
and the consolidated balance sheet data as of June 3, 2006 and May 28, 2005,
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 31,
2003 and June 1, 2002, and the consolidated balance sheet data as of May 29,
2004, May 31, 2003 and June 1, 2002, 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-three
  weeks ended
  June 3,
  2006

Fifty-two weeks endedMay 28,
  2005

May 29,
  2004*

May 31,
  2003*

June 1,
  2002*(in thousands, except
  per share data)Income statement
data:Net
sales

$
138,369

$
113,075

$
100,609

$
95,683

$
92,288Gross
profit


59,720


48,036


40,057


37,887


35,786Operating
profit (loss)


10,426


3,453


2,099


544


(425
)Earnings from
continuing operations
  before income taxes


10,702


6,559


5,542


1,936


919Earnings
(loss) from continuing
  operations


9,766


5,708


3,598


1,508


(366
)Net
earnings


9,766


6,936


6,726


2,741


585Earnings
(loss) from continuing
  operations per common shareBasic


.90


.53


.35


.15


(.04
)Diluted


.88


.52


.34


.14


(.04
)Earnings per
common shareBasic


.90


.64


.65


.27


.06Diluted


.88


.63


.63


.26


.06Cash dividends
declared per common
  share


.00


.30


.25


.00


.00Weighted
average common sharesBasic


10,849


10,762


10,344


10,048


9,848Diluted


11,106


10,951


10,625


10,419


10,160June 3,
  2006

May 28,
  2005

May 29,
  2004*

May 31,
  2003*

June 1,
  2002*(in thousands)Balance sheet data:Working
capital

$
77,061

$
59,612

$
88,636

$
60,123

$
56,746Cash, cash
equivalents and
  short-term debt and equity securities


40,268


28,602


24,464


16,296


21,221Total
assets


123,792


105,648


142,536


110,624


102,281Long-term
debt, less current
  maturities





85


178


215


327Stockholders equity


101,842


85,720


111,775


88,602


83,522-26-

*
Reclassified to reflect the discontinued operation
  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 the sections entitled
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Business, contain forward-looking information about our
companys financial results and estimates, business prospects and products in
research that involve substantial risks and uncertainties.  From time to time, we also may provide oral
or written forward-looking statements in other materials we release to the
public.  Forward-looking statements give
our current expectations or forecasts of future events.  You can identify these statements by the
fact that they do not relate strictly to historic or current facts.  They use words such as anticipate,
estimate, expect, project, intend, plan, believe,
will, and other
words and terms of similar meaning in connection with any discussion of future
operations or financial performance.  In
particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, interest rates, foreign exchange
rates, intellectual property matters, the outcome of contingencies, such as
legal proceedings, and financial results.

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

We do not assume any obligation to update or revise
any forward-looking statement that we make, even if new information becomes
available or other events occur in the future.
We are also affected by other factors which may be identified from time
to time in our filings with the Securities and Exchange Commission some of
which are set forth in Item 1A  Risk Factors in 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 which
may affect our business, investors are cautioned that other factors may prove
to be important in the future and could affect our operating results.  You should understand that it is not
possible to predict or identify all such factors or to assess the impact of
each factor or combination of factors on our business.  Consequently, you should not consider any
such list to be a complete set of all potential risks or uncertainties.

Overview

We are a leading provider of medical diagnostic oral
contrast agents and devices used in the diagnosis of abdominal disease.  Our customers include

-27-

radiologists and gastroenterologists.  We are focused on becoming a worldwide CT
solutions company for the computed tomography (CT) market.  This focus is driven by the trend away from
older fluoroscopic procedures (e.g., barium enema) to CT based applications for
imaging the entire abdominal tract because of the enhanced benefits of Multidetector
CT technology.

We have pioneered solutions for the emerging area of
Virtual Colonography, which may offer unique capabilities for the early
detection of colorectal cancer, and have also developed new contrast agents
(e.g., VoLumen) that focus on CT and CT Angiography applications in
Multidetector CT technology.  We also
manufacture and market a line of CT power injectors that deliver CT contrast
agents.

In November 2005, we introduced our IRiSCT
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 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 helps consolidate data from
the entire radiology department that radiology administrators can access from
their offices.  We believe that IRiSCT
represents a significant improvement from the traditional injector technology
applications, and offers us an important differentiation from the competition.

In addition to our products for the radiology market,
we have continued to focus our efforts in the area of defense
decontaminants.  Reactive Skin Decontamination
Lotion (RSDL) is a liquid skin decontaminant that is effective in neutralizing
a broad spectrum of chemical warfare and toxic agents.  In April 2005, we purchased from our
strategic partner, ODell Engineering, all its assets related to the RSDL technology.  We now have exclusive, worldwide rights to
the RSDL technology for the military and first-responder markets.  Prior to the acquisition, we were the
exclusive manufacturer of RSDL under an agreement between ODell Engineering
and our Canadian subsidiary.  We are
continuing to staff key positions for our RSDL product team.

In mid-December 2004, our principal competitor,
Mallinckrodt, a division of Tyco International Ltd., initiated a recall of its
liquid barium products due to potential microbial contamination.  As a result, our net sales have been
favorably affected by our ability to provide replacement products during the
past year and a half.  In the fourth
quarter of 2005, Mallinckrodt returned to market with one of their
products.  During the fourth quarter of
2006, Mallinckrodt returned to the market with a reduced product offering.  In addition, Mallinckrodt announced its
decision to partner with a third-party organization to sell its barium products
in the U.S.

In February 2006, the Executive Committee of our Board
of Directors approved a plan to wind down and close the operations of Toho
Kagaku Kenkyusho Co., Ltd. (Toho), a wholly owned Japanese subsidiary.  We decided to close Toho because we were unable
to generate income from operations to grow the business due to a limited
product offering and the scope of Tohos operations.  Also, a recent change in manufacturing location required us to
re-register Tohos principal products with the Japanese regulatory authorities,
which we projected would cause an interruption of supply during the first
quarter of 2007.  We planned a staged
market withdrawal to allow us to sell current inventory, collect accounts
receivable and sell the property in an organized fashion, while also satisfying
all outstanding liabilities.

-28-

Prior to our spin-off of AngioDynamics on October 30,
2004, we were also a provider of innovative medical devices used in minimally
invasive, image-guided procedures to treat peripheral vascular disease, or
PVD.  AngioDynamics designed, developed,
manufactured and marketed a broad line of therapeutic and diagnostic devices
that enabled interventional physicians (interventional radiologists, vascular
surgeons and others) to treat PVD and other non-coronary diseases.

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 3, 2006 represents
fifty-three weeks and our fiscal years ended May 28, 2005 and May 29, 2004
represent fifty-two weeks.

Consolidated
Results of Operations

We reported net earnings of $9,766,000, or $.90 and
$.88 per common share on a basic and diluted basis, respectively, for 2006, as
compared to net earnings of $6,936,000, or $.64 and $.63 per common share on a
basic and diluted basis, respectively, for 2005, and net earnings of
$6,726,000, or $.65 and $.63 per common share on a basic and diluted basis,
respectively, for 2004.  Results for
2006 included a tax benefit of $2,481,000, or $.23 per basic share, associated
with the closing of our Japanese subsidiary.
Results for 2006 also included the reversal of a tax valuation allowance
of $456,000, or $.04 per basic share, relating to a previously impaired,
non-core equity security.  Both our 2005
and 2004 results were favorably affected by gains on the sales of non-core
equity securities.  For 2005, such gains
totaled $3,270,000, or $.30 per basic share and, for 2004, such gains totaled
$2,622,000, or $.25 per basic share.

-29-

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

2006

2005

2004(in thousands)Earnings from continuing
operations

$
9,766

$
5,708

$
3,598Earnings from discontinued
operation





1,228


3,128Net earnings

$
9,766

$
6,936

$
6,726Our results for the last three years are expressed as a percentage
 of net sales in the following table:

2006

2005

2004Net sales


100.0
%

100.0
%

100.0
%Cost of goods sold


56.8


57.5


60.2Gross
profit


43.2


42.5


39.8Operating expensesSelling and
administrative


31.9


32.0


31.5Plant closings
and operational restructuring costs


0.3


2.6


1.8Gain on sale
of real property


(0.9
)Research and
development


4.3


4.8


4.4Total
operating expenses


35.6


39.4


37.7Operating
profit


7.6


3.1


2.1Other income
(expense)Interest
income


0.6


0.3


0.8Interest
expense


(0.3
)

(0.3
)

(0.3
)Other,
net


(0.1
)

2.7


2.9Earnings from
continuing operations before income taxes


7.8


5.8


5.5Income tax provision


0.7


0.8


1.9Earnings from
continuing operations


7.1


5.0


3.6Earnings from discontinued
operation, net of income tax
  provision





1.1


3.1NET
EARNINGS


7.1
%

6.1
%

6.7
%Continuing Operations

Operating profit for 2006 improved by $6,973,000 due
to increased sales and improved gross profit, partially offset by increased
operating expenses.  Results for 2006
included a gain of $1,205,000 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.  Results for 2006 also included $333,000 in
plant closing and operational restructuring costs incurred in winding down and
closing our Japanese facility.

-30-

Operating profit for 2005 improved by $1,354,000 due
to increased sales and improved gross profit, partially offset by increased
operating expenses, including increased plant closing and operational
restructuring costs of $1,146,000.

The 2006, 2005 and 2004 results included charges for
restructuring our manufacturing operations.
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.  The 2004 results
included $1,771,000 pre-tax, or $.15 per basic share, in plant closing and
operational restructuring costs incurred in closing our device manufacturing facility
in San Lorenzo, Puerto Rico, and our heat-sealing operation in Westbury, New
York, both of which were completed in the fourth quarter of 2004.

Net sales increased 22%, or $25,294,000, to
$138,369,000 for 2006, and 12%, or $12,466,000, to $113,075,000 for 2005.  The increase for 2006 was due to organic
sales growth, the Mallinckrodt liquid barium product recall, 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, as a significant portion of our domestic products are sold under
long-term group purchasing organization contracts.  On a product line basis, the net sales increase 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 $4,446,000, contract manufacturing products of
$3,378,000, defense decontaminant products of $2,550,000, and all other
products of $1,451,000.  The increase
for 2005 was due to: i) sales growth, of which we estimate from $5,600,000 to
$6,300,000 was attributable to the Mallinckrodt recall; ii) foreign currency
exchange rate fluctuations, which increased the translated amounts of our
foreign subsidiaries sales to U.S. dollars for financial reporting purposes by
$1,818,000; and iii) price increases, which accounted for less than 1% of net
sales for 2005.  On a product line
basis, the net sales increase for 2005 resulted primarily from increased sales
of CT imaging contrast products, particularly our CT Smoothie lines, and CT
injector systems totaling $11,268,000.

Net sales in international markets, including direct
exports from the U.S., increased 16%, or $6,399,000, to $45,448,000 for 2006,
and 11%, or $3,728,000, to $39,049,000 for 2005.  For 2006, the increase was due to increased sales of defense
decontaminants of $2,496,000, CT imaging products of $1,027,000, contract
manufacturing products of $923,000, X-ray fluoroscopy products of $873,000,
virtual colonoscopy products of $744,000, and all other products of
$336,000.  Price increases accounted for
slightly less than 1% of net sales in international markets for 2006.  For 2005, the increase resulted from foreign
currency exchange rate fluctuations, which increased the translated amounts of
foreign subsidiaries sales to U.S. dollars for financial reporting purposes by
$1,818,000, and sales volume increases of $1,778,000.  Price increases had minimal effect on net sales in international
markets for 2005.

-31-

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

2006

2005

2004$

%

$

%

$

%(dollars in thousands)CT Imaging Contrast

$
36,047


26.0

$
28,115


24.9

$
21,125


21.0CT Injector Systems


23,088


16.7


17,551


15.5


13,273


13.2Total CT
Imaging


59,135


42.7


45,666


40.4


34,398


34.2X-Ray Fluoroscopy


45,095


32.6


40,649


36.0


40,810


40.6Contract
Manufacturing


12,561


9.1


9,183


8.1


8,054


8.0Accessory Medical
Devices


5,235


3.8


5,328


4.7


5,351


5.3Gastroenterology


5,019


3.6


4,627


4.1


4,246


4.2Virtual Colonoscopy


4,140


3.0


3,654


3.2


3,698


3.7Defense
Decontaminants


3,506


2.5


956


0.8


1,164


1.1Other


3,678


2.7


3,012


2.7


2,888


2.9$
138,369


100.0

$
113,075


100.0

$
100,609


100.0Gross profit expressed as a percentage of net sales
was 43% for 2006, as compared to 42% for 2005 and 40% for 2004.  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.  Increased finished product
costs related primarily to finished goods purchased from our Canadian
subsidiary which were adversely affected by the continued weakening of the U.S.
dollar against the Canadian dollar.  The
percentage improvement in 2005 was due primarily to: (i) cost savings from the
closings of our device manufacturing facility in San Lorenzo, Puerto Rico, and
our heat-sealing operation in Westbury, New York; (ii) favorable changes in
sales product mix; and (iii) sales price increases, including the effects of
lower distributor rebates as a percentage of sales.

Selling and administrative (S&A) expenses were
$44,078,000 for 2006, $36,172,000 for 2005 and $31,720,000 for 2004.  The increase in 2006 compared to 2005 of
$7,906,000, or 22%, was due, in large part, to: (i) increased compensation
costs, including fringe benefits, of $2,540,000, due in part to increased
headcount; (ii) additional infrastructure expenses of $2,372,000 to support our
defense decontaminants business; and (iii) increased selling expenses relating
to the increase in net sales.  The
increase in 2005 compared to 2004 of $4,452,000, or 14%, was due, in large
part, to: (i) increased compensation costs, including fringe benefits, of
$1,400,000; (ii) foreign currency exchange rate fluctuations, which increased
the translated amounts of our foreign subsidiaries S&A expenses to U.S.
dollars for financial reporting purposes by $656,000; (iii) outside consulting
and auditing costs of $550,000 for Sarbanes-Oxley Act Section 404 compliance;
and (iv) the recording of a non-cash compensation charge of $427,000 resulting
from the modification of certain stock options previously granted to one of our
former directors.

Research and development (R&D) expenditures for 2006 totaled $5,983,000, or
4% of net sales, as compared to $5,494,000, or 5% of net sales, for 2005, and
$4,467,000, or 4% of net sales, for 2004.
The increase in 2006 compared to 2005 of $489,000 was due primarily to
increased costs of $991,000 for X-ray fluoroscopy and CT imaging 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.  The increase
in 2005 compared to 2004 of $1,027,000 was due primarily to increased spending
of $397,000 for gastroenterology projects, $329,000 for X-ray fluoroscopy and
CT imaging projects, $166,000 for general regulatory costs and $81,000 for
virtual colonoscopy projects.  Of the
R&D expenditures for 2006, approximately 60% related to X-ray fluoroscopy
and CT imaging projects, 28% to general regulatory

-32-

costs, 7% to gastroenterology projects, 3% to virtual
colonoscopy projects and 2% to other projects.
R&D expenditures are expected to continue at or exceed current
amounts.  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 $276,000
for 2006, compared to $3,106,000 for 2005 and $3,443,000 for 2004.  The decrease in 2006 compared to 2005 was due
primarily to a decline in gains on the sale of non-core equity securities
totaling $3,170,000.  The decrease in
2005 compared to 2004 was due primarily to the impairment of a non-core equity
security of $500,000 and reduced interest income of $423,000, partially offset
by increased gains of $648,000 on the sales of non-core equity securities.

Note J to our Consolidated Financial Statements
included in this report details the major elements affecting income taxes for
2006, 2005 and 2004.  For 2006, our
unusually low effective tax rate of 9% differed from the Federal statutory tax
rate of 34% due primarily to: i) a tax benefit of $2,481,000 from the closing
of our Japanese subsidiary; and ii) the reversal of a valuation allowance of
$456,000 for a previously impaired, non-core equity security, since it is now
more likely than not that such benefit will 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 which operated in Puerto
Rico, partially offset by non-deductible expenses, including stock option
compensation costs of $377,000.  For
2004, our effective tax rate of 35% differed from the Federal statutory tax
rate of 34% due primarily to not currently deductible losses incurred at our
subsidiary in Puerto Rico and non-deductible expenses, partially offset by
non-taxable imputed interest on loans to AngioDynamics of $596,000 and the
utilization of previously unrecorded net operating loss carryforwards in
certain foreign jurisdictions.  The
losses incurred at our Puerto Rican subsidiary resulted from the closing of this
facility and the outsourcing of its operations.

Discontinued Operation

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

Summarized results of
operations for AngioDynamics, including minority interest, as reported in
earnings from discontinued operation in the accompanying consolidated
statements of earnings for the fifty-two weeks ended May 28, 2005 and May 29,
2004 are as follows:

-33-

2005

2004(in thousands)Net salesFrom
unaffiliated customers

$
22,342

$
48,162From
affiliates


420


893Total net sales

$
22,762

$
49,055Earnings before income
taxes

$
2,628

$
4,381Income tax provision


1,103


1,238Earnings before minority
interest


1,525


3,143Minority interest


297


15Earnings from discontinued
operation

$
1,228

$
3,128The results for the
discontinued operation for 2005 represent twenty-two weeks activity and,
therefore, are not comparable to the results for 2004.

Liquidity
and Capital Resources

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. For 2004, operations, capital expenditures, cash dividends,
repayment of debt and the purchase of treasury stock were funded by working
capital and proceeds from the exercise of stock options. Our policy has
generally been to fund operations and capital requirements without incurring
significant debt. As of June 3, 2006, debt (notes payable, current maturities of
long-term debt and long-term debt) was $31,000, as compared to $531,000 at May
28, 2005. We have $1,817,000 available under a bank line of credit, of which no
amounts were outstanding at June 3, 2006.

Our contractual obligations and their effect on
liquidity and cash flows as of June 3, 2006 are set forth in the table
below.  We have no variable interest
entities or other off-balance sheet obligations.

Payments Due By Period
  as of June 3, 2006Total

Less than
  1 year

1-3
  years

3-5
  years

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

$
31

$
31Operating
leases (1)


7,322


1,842

$
3,443

$
2,013

$
24Purchase
obligations (1)


2,307


2,307Employment
contract (1)


720


720Consulting
contracts (1)


25


25Other
liabilities reflected on the
  consolidated balance sheetDeferred
compensation (2)


2,739


418


125


157


2,039Asset
acquisition


700


700License
arrangements


686


686Accrued
severance benefits


308


308Total

$
14,838

$
7,037

$
3,568

$
2,170

$
2,063-34-

(1)
The non-cancelable operating leases, purchase
  obligations, and employment and consulting contracts are not reflected on the
  consolidated balance sheet under accounting principles generally accepted in
  the United States of America.  The
  purchase obligations consist 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 3, 2006, approximately $40,268,000, or 33%, of
our assets consisted of cash and cash equivalents and short-term debt and
equity securities.  The current ratio
was 5.21 to 1, with net working capital of $77,061,000, at June 3, 2006,
compared to the current ratio of 4.81 to 1, with net working capital of
$59,612,000, at May 28, 2005.  The
increase in net working capital is due, in large part, to increased inventory
of $4,330,000, to support our increased business, and increased accounts
receivable of $3,232,000, resulting from increased sales.  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 $1,749,000 for 2006, compared to $4,163,000 for 2005 and $2,352,000
for 2004.  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 2007 is currently expected to approximate 2006 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 2006,
no shares were repurchased under this program.
In aggregate, we have repurchased 74,234 shares of common stock for
approximately $716,000 under this program.

In June 2003, our Board of Directors declared a cash
dividend of $.25 per outstanding share of our common stock.  The dividend was distributed on August 1,
2003 to shareholders of record as of July 15, 2003.  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 the 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 position or liquidity for the periods presented in this
report.  The accounting policies
identified as critical are as follows:

-35-

Revenue
Recognition

We recognize revenues in accordance with generally
accepted accounting principles as outlined in Staff Accounting Bulletin No.
104, Revenue Recognition in Financial Statements, which requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) the price is fixed or determinable; (3) collectibility
is reasonably assured; and (4) product delivery has occurred or services have
been rendered.  Decisions relative to
criterion (3) regarding collectibility are based upon our judgments, as
discussed under Accounts Receivable below.
Should conditions change in the future and cause us to determine this
criterion is not met, our results of operations may be affected.  We recognize revenue on the date the product
is shipped, which is when title passes to the customer.  Shipping and credit terms are negotiated on
a customer-by-customer basis.  Products
are shipped primarily to distributors at 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-three
weeks ended June 3, 2006 and fifty-two weeks ended May 28, 2005 are as follows:

2006

2005(in thousands)Beginning balance

$
1,397

$
1,611Provision for
  rebates


25,855


21,949Rebate credits
  issued


(25,386
)

(22,163
)Ending balance

$
1,866

$
1,397The 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 have visibility
  as to the specific inventory levels held by our distributors. However, based
  on discussions with our customers, who uniformly attempt to maintain a
  just-in-time purchasing program, and our knowledge of their ordering
  patterns, we estimate a one-week wholesale inventory level. Since most of our
  product sales are subject to GPO contracts, most distributor
  inventory-on-hand will be subject to rebate.
  This portion of the rebate estimate is derived by first determining
  the total quantity of each product sold by us during the last week of the
  fiscal period multiplied by two factors, (a) and (b), where (a) is the
  percentage of each product rebated during the prior six-month period based on
  historical sales and (b) is the average rebate paid on that product during
  this period.All product returns must be pre-approved by us and may
be subject to a 20% restocking charge.
To be accepted, a returned product must be unadulterated, undamaged and
have at least 12 months remaining on its stated expiration date.

-36-

We record revenue on warranties and extended
warranties on a straight-line basis over the terms of the related warranty
contracts, which generally cover one year.
Deferred revenues related to warranties and extended warranties were
$688,000 and $505,000 at June 3, 2006 and May 28, 2005, respectively.  Service costs are expensed as incurred.

Accounts
Receivable

Accounts receivable are generally due within 30 to 90
days and are stated at amounts due from customers, net of an allowance for
doubtful accounts.  We perform ongoing
credit evaluations and adjust credit limits based upon payment history and the
customers current credit worthiness, as determined by a review of their
current credit information.  We
continuously monitor aging reports, collections and payments from customers,
and maintain a provision for estimated credit losses based upon historical
experience and any specific customer collection issues we identify.  While such credit losses have historically
been within expectations and the provisions established, we cannot guarantee
the same credit loss rates will be experienced in the future.  We write off accounts receivable when they
become uncollectible.  Concentration
risk exists relative to our accounts receivable, as 39% and 37%, respectively,
of our total accounts receivable balance at June 3, 2006 and May 28, 2005 was
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-three weeks ended June 3, 2006 and fifty-two weeks ended May 28, 2005 are
as follows:

2006

2005(in thousands)Beginning balance

$
869

$
851Provision for
  doubtful accounts


77


111Write-offs


(27
)

(93
)Ending balance

$
919

$
869Income
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 3, 2006 and May 28, 2005, our
valuation allowance totaled $2,413,000 and $2,924,000, respectively.  The total net deferred tax asset at June 3,
2006 and May 28, 2005 was $2,605,000 and $1,641,000, 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

-37-

unanticipated changes in demand could have a
significant impact on the value of our inventory and results of
operations.  At June 3, 2006 and May 28,
2005, our reserve for excess and obsolete inventory was $2,053,000 and
$1,902,000, respectively.

Property,
Plant and Equipment

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

Effects
of Recently Issued Accounting Pronouncements

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

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

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

-38-

material impact on our financial condition and results
of operations commencing with our fiscal quarter ending September 2, 2006.

In December 2004, the FASB issued Financial Staff
Position No. 109-2, Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004,
(FSP No. 109-2).  FSP No. 109-2
provides accounting guidance for the one-time tax deduction of 85% of certain
foreign earnings that are repatriated, under a plan for reinvestment in the
U.S., from controlled foreign subsidiaries in excess of a base amount as
defined in the American Jobs Creation Act of 2004 (AJCA).  The AJCA was enacted on October 22,
2004.  FSP No. 109-2 allowed additional
time for companies to evaluate the effects of the AJCA on any plan for
reinvestment or repatriation of foreign earnings for purposes of applying FASB
Statement No. 109.  In May 2006, we
adopted a domestic reinvestment plan, and our foreign subsidiary in the United
Kingdom remitted cash dividends of $1,701,000 to the U.S.  In conjunction with the repatriation, we
recorded Federal income tax expense of $87,000 based on current tax law.

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

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

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 2005 fiscal year.

Foreign
Currency Exchange Rate Risk

The financial reporting of our international
subsidiaries is denominated in currencies other than the U.S. dollar.  Since the functional currency of our
international subsidiaries is the local currency, foreign currency translation

-39-

adjustments are accumulated as a component of
accumulated other comprehensive income in stockholders equity.  Assuming a hypothetical aggregate change in
the exchange rates of foreign currencies against the U.S. dollar of 10% at June
3, 2006, our assets and liabilities would increase or decrease by $4,175,000
and $637,000, respectively, and our net sales and net earnings would increase
or decrease by $3,268,000 and $222,000, respectively, on an annual basis.

We also maintain intercompany balances and loans
receivable with subsidiaries with different local currencies.  These amounts are at risk of foreign
exchange losses if exchange rates fluctuate.
Assuming a hypothetical aggregate change in the exchange rates of
foreign currencies against the U.S. dollar of 10% at June 3, 2006, our pre-tax
earnings would be favorably or unfavorably impacted by approximately $989,000
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
3, 2006, we were exposed to interest rate change market risk with respect to
our investments in tax-free municipal bonds in the amount of $33,290,000.  The bonds bear interest at a floating rate
established between seven and 35 days.
For 2006, the after-tax interest rate on the bonds approximated
2.9%.  Each 100 basis point (or 1%)
fluctuation in interest rates will increase or decrease interest income on the
bonds by approximately $333,000 on an annual basis.

As our principal amount of fixed interest rate
financing approximated $31,000 at June 3, 2006, a change in interest rates
would not materially impact results of operations or financial position.  At June 3, 2006, we did not maintain any
variable interest rate financing.

As of June 3, 2006, we have $1,817,000 available 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 prime.  We will thus be exposed to interest rate
risk with respect to this credit facility to the extent that interest rates
rise when there are amounts outstanding under this facility.

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.

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

-40-

June 3, 2006.
This evaluation was carried out under the supervision and with
participation of our Chief Executive Officer and Chief Financial Officer.  There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures.  Therefore, effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives.  Based upon our evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective as of June 3, 2006, to provide
reasonable assurance that information required to be disclosed in the reports
that we file under the Exchange Act is recorded, processed, summarized and
reported in a timely manner and is accumulated and communicated to management,
including our Chief Executive Officer and 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 fourth quarter ended June 3, 2006 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.

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 3,
2006.  Grant Thornton LLP, our
independent registered public accounting firm, has issued an

-41-

attestation report on managements assessment of the
effectiveness of our internal control over financial reporting as of June 3,
2006.  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 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 3, 2006, 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 3, 2006, 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 3, 2006, based on the COSO
criteria.

-42-

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 3, 2006 and May 28, 2005,
and the related consolidated statements of earnings, stockholders equity and
comprehensive income, and cash flows for the fifty-three weeks ended June 3,
2006 and the fifty-two weeks ended May 28, 2005 and May 29, 2004, and our
report dated August 4, 2006 expressed an unqualified opinion thereon.

/s/ Grant Thornton LLPMelville, New York
  August 4, 2006Item 9B.
Other
  InformationNone.-43-

Part
III

Certain
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 17,
2006. The information included in the Proxy Statement under the respective
headings noted below is incorporated herein by reference.

Item 10.
Directors and Executive Officers of the RegistrantThe following
table sets forth certain information with respect to our executive officers and
directors.

Name

Age

PositionsAnthony A.
  Lombardo

59

President,
  Chief Executive Officer, DirectorDennis J.
  Curtin

59

Senior Vice
  President - Chief Financial OfficerPeter J.
  Graham

40

Senior Vice
  President  Chief Legal Officer,
Global Human Resources and SecretaryJoseph J.
  Palma

64

Senior Vice
  President  Corporate RelationsJeffrey S.
  Peacock

49

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

49

Senior Vice
  President - Global Sales, Marketing and
EngineeringPaul S.
  Echenberg (1)

62

Chairman of
  the Board, Chairman of the Board of E-Z-EM Canada, DirectorRobert J. Beckman (1)(2)(3)

58

DirectorJames L. Katz CPA, JD (2)(4)(5)

70

DirectorDavid P.
  Meyers (5)

42

DirectorJohn T.
  Preston (1)(2)

56

DirectorJames H.
  Thrall, M.D (3)(4)

63

DirectorGeorge P.
  Ward (3)(4)

68

Director(1)
Member of
  Executive Committee(2)
Member of
  Audit Committee(3)
Member of
  Nominating and Governance Committee(4)
Member of
  Compensation Committee(5)
Member of
  Finance CommitteeDirectors are
elected for a three-year term, and each holds office until his successor is
elected and qualified. The term of office for Class I directors, consisting of
James L. Katz, Anthony A. Lombardo and James H. Thrall, M.D., expires in 2006.
The term of office for Class II directors, consisting of Robert J. Beckman,
Paul S. Echenberg and John T. Preston, expires in 2007. The term of office for
Class III directors, consisting of David P. Meyers and George P. Ward, expires
in 2008. All executive officers are elected annually and serve at the pleasure
of the board of directors.

-44-

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. Curtin has
served as our Senior Vice President - Chief Financial Officer since 1999, and
as our Vice President - Chief Financial Officer from 1985 to 1999. Mr. Curtin
has been an employee of ours since 1983.

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. Palma has
served as our Senior Vice President  Corporate Relations since May 2006.
Previously, he served as our Senior Vice President  North America Imaging
Sales and National Accounts from 2005 until May 2006, Senior Vice President -
Global Sales from 2002 to 2005, Senior Vice President - Sales and Marketing
from 1999 to 2002, Vice President - Sales and Marketing from 1996 to 1999, and
Vice President - Sales from 1995 to 1996. Mr. Palma has been an employee of
ours since 1994.

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. Beckman
has been a director of our company since 2002. He is a founder and has been a
Managing Partner of The Channel Group, a venture management and corporate
advisory business focusing on global life sciences, since 2002. Previously, he
founded Intergen Co., a company that provides technology and biologicals to the
pharmaceutical/biotechnology and clinical diagnostic industries, and served as
its Chief Executive Officer from 1987 until 2001.

Mr. Echenberg
has been a director of our company since 1987 and has served as Chairman of our
board of directors since 2005, and Chairman of the board of directors of E-Z-EM
Canada since 1994. He has been the President, Chief Executive Officer and a
director of Schroders & Associates Canada Inc. (investment buy-out advisory
services), and a director of Schroders Ventures Ltd., since 1997. He is also a
founder and has been a general partner and a director of Eckvest Equity Inc.
(personal investment and consulting services) since 1989. He is also the
Chairman of the board of directors of AngioDynamics, Inc., our former subsidiary
and now a publicly held company, and is a director of Lallemand Inc., Benvest
New Look Income Fund, a publicly held company, ITI Medical Technologies, Inc.,
Flexia Corp., Fib-Pak Industries Inc., Med-Eng Systems Inc., MacroChem Corp., a
publicly held company, Matra Plast Industries Inc. and A.P. Plasman
Corp.

Mr. Katz has
been a director of our company since 1983. He is a founder and a director of
Lakeshore Medical Fitness, LLC (owns and manages medical fitness facilities),
and has served as its Chief Executive Officer since 2000. He is also a founder
of Medical Imaging of Northbrook Court, LLC (screening and

-45-

diagnostic
imaging), and has served as an administrative member since 2001. Previously, he
was a founder and managing director from its organization in 1995 until 2000 of
Chapman Partners LLC (investment banking). From its acquisition in 1985 until
its sale in 1994, he was the co-owner and President of Ever Ready Thermometer
Co., Inc. From 1971 until 1980 and from 1983 until 1985, he held various
executive positions with Baxter International and its subsidiaries, principally
that of Chief Financial Officer of Baxter International. He is also a director
of Intec, Inc., as well as a member of the Board of Advisors of Jerusalem
Global and AEG Partners.

Mr. Meyers has
been a director of our company since 1996. He is a founder of Alpha Cord, Inc.,
which provides cryopreservation of umbilical cord blood, and has served as its
President since 2002. Previously, he founded MedTest Express, Inc., an Atlanta,
Georgia-based provider of contracted laboratory services for home health
agencies, and served as its President, Chief Executive Officer and a director
from 1994 to 2002. He is also a director of AngioDynamics, Inc.

Mr. Preston
has been a director of our company since 2004. He has served as the President
and CEO of Atomic Ordered Materials, LLC since 1999 and has been a Senior
Lecturer at the Massachusetts Institute of Technology (MIT) since 1996. He is
the founder of Quantum Energy, LLC and served as its CEO from 1996 to 1999. He
was the Director of Technology Development at MIT from 1992 to 1996. From 1986
to 1992, Mr. Preston served as Director of Technology Licensing at MIT and from
1977 to 1986 held various technology management positions with MIT. He is also
a director of Clean Harbors, Inc. and Boston Life Science, Inc., both publicly
held companies, as well as several private companies.

Dr. Thrall has been a director of our company since 2005.
He is a radiologist and chairs the Department of Diagnostic Radiology of the
Massachusetts General Hospital. He serves as a member of the Board of Trustees
of the Massachusetts General Physicians Organization. He is a director of
WorldCare, Inc., a company providing telemedicine and clinical trial support
services, and has served as its Chairman of the Board since 1999. Since 2002,
he has been a director of Mobil Aspects Inc., a company focused on radio
frequency identification (RFID) technology, and has served as its Chairman of
the Board since 2005. Among other professional organizations, Dr. Thrall serves
on the Board of Trustees of the Society of Chairman of Academic Radiology
Departments, the Board of Chancellors of the American College of Radiology and
the Board of Trustees of the Research and Education Foundation of the
Radiological Society of North America.

Mr. Ward has
been a director of our company since 2002. Prior to his retirement in 2002, Mr.
Ward served as Executive Vice President - Business Development of Health Center
Internet Services, Inc., in San Francisco, California from 1997 until 2001. He
served as a director and consultant for ALI Technologies, Inc. of Richmond,
British Columbia, Canada from 1996 until 2002. After serving as an officer in
the U.S. Air Force, he began his career as a rocket engineer with Thiokol
Chemical Corp. in 1962, then joined the General Electric Space Division as a
program manager and marketing manager in 1966. After a GE corporate headquarters
assignment in 1973, Mr. Ward moved to the GE Medical Business, where he managed
the X-ray and other medical imaging businesses. In 1977, he became President,
CEO and a director of Systron Donner Corp., Concord, California (then
NYSE-listed). In 1982, he became President, CEO and a director of Vitalink
Communications Corp., Mountain View, California, and in 1986, he founded
MEICOR, Inc., Pleasanton, California, and served as its Chairman, CEO and a
director. From 1987 until 1991, he was a Worldwide Business Group Managing
Director for Philips Medical, and since 1991, a director/consultant for several
high technology companies. He also was a

-46-

director of
Blue Cross of California, Woodland Hills, California from 1986 to 1996.

Audit Committee Financial Expert

The
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Audit Committee Report.

Identification of the Audit Committee

The
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Audit Committee Report.

Material Changes to Procedure for Shareholder
Recommendations of Nominees to the Board of Directors

None.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a)
of the Exchange Act requires our executive officers and directors, and persons
who own more than 10% of a registered class of our equity securities, to file
reports of initial ownership and changes in ownership with the Securities and
Exchange Commission. Based solely on our review of copies of such forms
received by us, or on written representations from certain reporting persons
that no reports were required for such persons, we believe that, during the
fiscal year ended June 3, 2006, all of the filing requirements applicable to
our executive officers, directors and 10% shareholders were complied with,
except that James L. Katz filed a Form 4 on January 25, 2006 that was four
business days late, reporting the sale of stock.

Code of Ethics

The information
required by this caption 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.

-47-

Item 11.
Executive CompensationSummary Compensation Table

The following
table sets forth information concerning the compensation for services, in all
capacities for 2006, 2005 and 2004, of (i) those persons who were, during 2006,
our Chief Executive Officer (CEO) (Anthony A. Lombardo), and (ii) those
persons who were, at the end of 2006, our four most highly compensated
executive officers other than the CEO (collectively, the Named Executive
Officers):

Annual
  Compensation

Long-Term
  CompensationAwards

PayoutsName and
  Principal
  Position

Fiscal
  Year

Salary
  ($)

Bonus
  ($)

Other
  Annual
  Compensation(1)
  ($)

Restricted
  Stock
  Awards
  ($)

Securities
  Underlying
  Options
  # (2)

LTIP
  Payouts
  ($)

All
  Other
  Compensation(3)
  ($)Anthony A. Lombardo,


2006

$
350,784

$
249,769


None


None

75,000




None

$
12,055President and Chief


2005


340,370


256,190


None


None

90,000




None


11,240Executive Officer


2004


320,000


132,828


None


None

None





None


10,380Jeffrey S. Peacock,


2006

$
224,591

$
101,610


None


None

28,000




None

$
11,804Senior Vice President


2005


207,454


99,828


None


None

15,000




None


11,1592004


185,000


53,754


None


None

None




None


10,063Brad S. Schreck,


2006

$
215,040

$
97,274


None


None

28,000




None

$
11,690Senior Vice President


2005


198,783


95,733


None


None

15,000



 
None


10,9892004


185,000


53,754


None


None

None




None


9,292Dennis J. Curtin,


2006

$
215,025

$
97,274


None


None

28,000




None

$
11,520Senior Vice President


2005


206,211


99,616


None


None

35,000





None


11,0532004


188,402


81,427


None


None

None





None


9,872Peter J. Graham,


2006

$
195,910

$
88,905


None


None

28,000




None

$
11,037Senior Vice President


2005


194,690


76,090


None


None

10,000




None


10,9572004


178,000


68,619


None


None

None




None


10,361(1)
We have
  concluded that the aggregate amount of perquisites and other personal
  benefits paid to each of the Named Executive Officers for 2006, 2005 and 2004
  did not exceed the lesser of 10% of such officers total annual salary and
  bonus for 2006, 2005 or 2004 or $50,000; such amounts are, therefore, not
  reflected in the table.(2)
Options are
  exercisable for our common stock.(3)
For each of
  the Named Executive Officers, the amounts reported include amounts we
  contributed under our Profit-Sharing Plan and, as matching contributions,
  under the companion 401(k) Plan. For 2006, 2005 and 2004, such amounts
  contributed were: $11,095, $10,385 and $9,600, respectively, for Mr.
  Lombardo; $10,969, $10,458 and $9,486, respectively, for Mr. Peacock;
  $10,884, $10,319 and $8,715, respectively, for Mr. Schreck; $10,713, $10,352
  and $9,284, respectively, for Mr. Curtin; and $10,308, $10,324 and $9,831,
  respectively, for Mr. Graham.For each of
  the Named Executive Officers, the amounts reported include term life
  insurance premiums we paid. For 2006, 2005 and 2004, such amounts paid were:
  $960, $855 and $780, respectively, for Mr. Lombardo; $835, $701 and $577,
  respectively, for Mr. Peacock; $806, $670 and $577, respectively, for Mr.
  Schreck; $807, $701 and $588, respectively, for Mr. Curtin; and $729, $633
  and $530, respectively, for Mr. Graham.-48-

Option Grants in Last Fiscal Year

The following
table sets forth certain information concerning stock option grants made during
2006 to the Named Executive Officers. These grants are also reflected in the
Summary Compensation Table. In accordance with SEC disclosure rules, the
hypothetical gains or option spreads for each option grant are shown based on
compound annual rates of stock price appreciation of 5% and 10% from the grant
date to the expiration date. The assumed rates of growth are prescribed by the
SEC and are for illustrative purposes only; they are not intended to predict
future stock prices, which will depend upon market conditions and our future
performance. We did not grant any stock appreciation rights during 2006.

Individual
  Grants

Potential
  Realizable
  Value at Assumed
  Annual Rates of
  Stock Price
  Appreciation for
  Option TermName

Number
  of
  Securities 
  Underlying 
  Options 
  Granted 
  (#)

% of
  Total
  Options
  Granted to 
  Employees in 
  Fiscal Year 
  2006

Exercise
  or Base
  Price 
  ($/Sh) (3)



Expiration
  Date

5% ($)

10% ($)Anthony A. Lombardo



40,000
(1)



10.7
%

$
14.475


6/1/15

$
364,130

$
922,77735,000
(2)



9.4
%

$
17.49


5/15/16

$
384,978

$
975,609Jeffrey S. Peacock



13,000
(1)



3.5
%

$
14.475


6/1/15

$
118,342

$
299,90215,000
(2)



4.0
%

$
17.49


5/15/16

$
164,991

$
418,118Brad S. Schreck



13,000
(1)



3.5
%

$
14.475


6/1/15

$
118,342

$
299,90215,000
(2)



4.0
%

$
17.49


5/15/16

$
164,991

$
418,118Dennis J. Curtin



13,000
(1)



3.5
%

$
14.475


6/1/15

$
118,342

$
299,90215,000
(2)



4.0
%

$
17.49


5/15/16

$
164,991

$
418,118Peter J. Graham



13,000
(1)



3.5
%

$
14.475


6/1/15

$
118,342

$
299,90215,000
(2)



4.0
%

$
17.49


5/15/16

$
164,991

$
418,118(1)
These
  options were granted on June 2, 2005 and vested on June 2, 2006.(2)
These
  options were granted on May 16, 2006 and vested immediately.(3)
The options
  granted during 2006 have an exercise price not less than the fair market
  value of our common stock on the date of grant, and expire in ten years.-49-

Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following
table sets forth information concerning all exercises of stock options during
2006 by our Named Executive Officers and the fiscal year-end value of
unexercised stock options on an aggregated basis:

Number of
  Securities
  UnderlyingUnexercisedOptions atJune 3, 2006
  (#)

Value of
  UnexercisedIn-the-MoneyOptions atJune 3, 2006
  ($) (1)Name


SharesAcquired onExercise (#)


ValueRealized($)


Exercisable/Unexercisable(2)

Exercisable/Unexercisable(2)Anthony A. Lombardo


None


None


415,996/


$
2,768,905
/None



NoneJeffrey S. Peacock


None


None


52,682/


$
129,229
/None



NoneBrad S. Schreck


None


None


66,958/


$
276,792
/None



NoneDennis J. Curtin


None


None


63,000/


$
70,910
/None



NonePeter J. Graham


None


None


60,817/


$
318,070
/None



None(1)
An option is
  in-the-money if on June 3, 2006, the market price of the common stock
  exceeded the exercise price of the option. On June 3, 2006, the closing price
  of our common stock was $15.77. The value of these options is calculated by
  determining the difference between the aggregate market price of the stock
  covered by the options on June 3, 2006 and the aggregate exercise price of
  the options.(2)
Options are exercisable
  into our common stock.Long-Term Incentive Plan Awards Table and
Defined Benefit or Actuarial Plan Table

We did not
make any awards under any long-term incentive plan in 2006 and do not maintain
any defined benefit or actuarial plans.

Compensation of Directors

Directors who
are not our employees are entitled to the following compensation: a monthly
retainer of $2,000; a fee of $1,750 for each board meeting attended in person;
a fee of $500 for each telephonic board meeting in which they participate; an
annual grant of 1,000 shares of our common stock; and an annual grant of an
option to purchase 4,000 shares of our common stock, which typically vests one
year from date of grant. The Chairman of the Board is entitled to 1.75 times
the above-referenced fees. Directors who serve on committees of the board and
who are neither our employees nor the Chairman of the Board are entitled to a
fee of $1,000 for each committee meeting attended in person and a fee of $500
for each telephonic committee meeting in which they participate, except that
the committee chairmen are entitled to a fee of $1,500 for each committee
meeting attended in person and $750 for each telephonic

-50-

committee
meeting in which they participate. Directors who are our employees do not
receive any compensation for their services as directors.

Upon joining
our board, new directors receive options for 24,000 shares of our common stock,
which vest one-third per year over three years from date of grant.

In August
2005, our board of directors approved an annual expenditure of $20,000 towards
the cost of an office and secretary for Paul S. Echenberg, the Chairman of our
board of directors.

James L. Katz
receives an additional monthly retainer of $1,000 for serving as Chairman of
our Audit Committee.

Michael A.
Davis, M.D., a Director Emeritus, provides us, on an ongoing basis, with
consulting services in his capacity as our Medical Director. We paid Dr. Davis
approximately $243,000 for his services during 2006.

We entered
into an agreement, effective as of January 1, 2004, with Donald A. Meyer, a
Director Emeritus, under which Mr. Meyer agreed to serve as the trustee of our
401(k) plan and to provide us with such other services as we may reasonably
request from time-to-time. The agreement is for a term of 36 months unless
terminated earlier pursuant to its terms. Mr. Meyer receives a monthly payment
of $3,500 and reimbursement for reasonable business expenses incurred in
providing services under the agreement. In 2006, we paid Mr. Meyer $42,000
under our agreement with him.

Employment Contracts and Termination of
Employment and Change-In-Control Arrangements

Effective June
1, 2004, we amended our employment contract, entered into in 2000, with Anthony
A. Lombardo in his capacity as our President and Chief Executive Officer. This
amended employment contract provides for annual base salary at $360,000. The
contract is cancelable at any time by either Mr. Lombardo or us, but provides
for severance pay of two years base salary in the event of termination by us
without cause, as defined in the contract. Unless cancelled earlier, the
amended contract will terminate on May 31, 2007.

The
information required by this caption for termination of employment and change
in control arrangements is incorporated herein by reference to our Proxy
Statement under the heading Executive Compensation - Severance Arrangements.

Report on Repricing of Options/SARs

In 2006, we
did not adjust or amend the exercise price of any stock options or SARs
previously awarded to any of the Named Executive Officers.

Compensation Committee Interlocks and Insider
Participation in Compensation Decisions

The following
directors serve on our Compensation Committee: James L. Katz, James H. Thrall,
M.D. and George P. Ward. None of the directors serving on our Compensation
Committee is a current or former officer or employee of ours or any of our
subsidiaries. None of these directors had any relationship required to be
disclosed by us under Item 404 of Regulation S-K under the Securities Exchange
Act of 1934.

-51-

Board Compensation Committee Report on
Executive Compensation

The
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Executive Compensation - Compensation
Committee Report on Executive Compensation.

Performance Graph

The
information required by this caption is incorporated herein by reference to our
Proxy Statement under the heading Executive Compensation - Common Stock
Performance Graph.

Item 12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder MattersThe following table sets forth
information, as of August 1, 2006, as to the beneficial ownership of our common
stock, by (i) each person known by us to own beneficially more than 5% of our
common stock, (ii) each of our directors, (iii) each of our Named Executive
Officers, and (iv) all our directors and executive officers as a group:

Name and Address of
  Beneficial Owner


Shares Beneficially
  Owned (1)


Percent of
  ClassLinda B.
  Stern,


1,955,279
(2)


17.923 Willets
  RoadOld
  Westbury, NY 11568Wellington
  Management Company,


1,008,700
(3)


9.375 State
  StreetBoston, MA
  02109Ira Albert,


800,042
(4)


7.41304 SW 160th
  Avenue, Suite 209Ft.
  Lauderdale, FL 33326Kopp
  Investment Advisors, LLC


574,240
(5)


5.37701 France
  Avenue South, Suite 500Edina, MN
  55435David P.
  Meyers,


553,728
(6)


5.1Director813
  Springdale RoadAtlanta, GA
  30306Peter J.
  Graham,


486,244



4.4Senior Vice
  PresidentAnthony A.
  Lombardo,


415,996



3.7President,
  Chief ExecutiveOfficer,
  DirectorPaul S.
  Echenberg,


126,044



1.2Chairman of
  the Board and Chairmanof the Board
  of E-Z-EM CanadaDennis J.
  Curtin,


83,200



*Senior Vice
  President-52-

Name and Address of
  Beneficial Owner


Shares Beneficially
  Owned (1)


Percent of
  ClassBrad S.
  Schreck,


66,958



*Senior Vice
  PresidentJames L.
  Katz,


56,138



*DirectorJeffrey S.
  Peacock,


52,682



*Senior Vice
  PresidentRobert J.
  Beckman,


52,451



*DirectorGeorge P.
  Ward,


51,951



*DirectorJohn T.
  Preston,


38,000



*DirectorJames H.
  Thrall, M.D.,


37,000



*DirectorAll
  directors and executive officers as a group (13 persons)


2,060,392
(6)


17.3*
Does not
  exceed 1%.(1)
Includes shares of our
  common stock issuable upon exercise of options currently exercisable or
  exercisable within 60 days from August 1, 2006 as follows: David P. Meyers
  (39,736), Peter J. Graham (60,817), Anthony A. Lombardo (415,996), Paul S.
  Echenberg (54,074), Dennis J. Curtin (63,000), Brad S. Schreck (66,958),
  James L. Katz (44,324), Jeffrey S. Peacock (52,682), Robert J. Beckman
  (47,951), George P. Ward (47,951), John T. Preston (37,000), James H. Thrall,
  M.D. (37,000) and all directors and executive officers as a group
  (1,007,489).(2)
As executor for the Estate
  of Howard S. Stern, Linda B. Stern is deemed to share beneficial ownership of
  all of the shares of our common stock beneficially owned by the Estate of
  Howard S. Stern, for total beneficial ownership of 1,880,974 shares,
  including 28,000 shares of our common stock issuable under currently
  exercisable options. In addition, Linda Stern is the sole beneficial owner of
  74,305 shares. The information relating to Linda Sterns share ownership was
  obtained from a Schedule 13D/A dated May 23, 2006 and a Form 4 filed on July
  28, 2006.(3)
Wellington Management
  Companys share information was obtained from a Schedule 13G dated February
  14, 2006.(4)
Mr. Alberts share
  ownership was obtained from a Schedule 13D dated July 18, 2003.(5)
Kopp Investment Advisors,
  LLCs share information was obtained from a Schedule 13G dated January 20,
  2006, filed on behalf of Kopp Investment Advisors, LLC, Kopp Holding Company,
  LLC, Kopp Holding Company and LeRoy C. Kopp.(6)
Excludes (i) 48,399 shares
  held by David P. Meyers wife, (ii) 25,773.6 shares held by a trust established
  for the benefit of his children, and-53-

(iii) 52,134 shares in
  which Mr. Meyers has a remainder interest and his mother has a life estate,
  as to which Mr. Meyers disclaims beneficial ownership. The information
  relating to Mr. Meyers share ownership was obtained from a Form 4 filed by
  Mr. Meyers on June 5, 2006 and other information available to the Company.Equity Compensation Plan Information

The following
table sets forth information, as of June 3, 2006, with respect to compensation
plans under which our equity securities are authorized for issuance.

(a)

(b)

(c)Plan
  category

Number of
  securities
  to be issued upon
  exercise of
  outstanding options,
  warrants and rights

Weighted-average
  exercise price
  of outstanding
  options, warrants
  and rights

Number of
  securities
  remaining available
  for future issuance
  under equity
  compensation plans
  (excluding securities
  reflected in
  column (a))Equity compensation plans
approved by security holders



1,358,043



$
12.23




129,070
(1)Equity compensation plans not
approved by security holders



None



None




NoneTotal



1,358,043



$
12.23




129,070(1)
Consists of 24,675 shares
  reserved for issuance under our 2004 Stock and Incentive Award Plan and
  104,395 shares reserved for issuance under our 1985 Employee Stock Purchase
  Plan.Item 13.
Certain Relationships and Related TransactionsWe have split
dollar life insurance arrangements with Linda B. Stern and Betty K. Meyers,
which were entered into on May 27, 1998 and May 25, 1998, respectively. Linda
Stern is a principal shareholder of our company and the widow of Howard S.
Stern, a co-founder of our company. Betty Meyers is a shareholder of our
company and the widow of Phillip H. Meyers, a co-founder of our company. She is
also the mother of David P. Meyers, a director and a principal shareholder of
our company. The Betty Meyers policy is owned by the Betty Meyers Life
Insurance Trust, the beneficiaries of which include David P. Meyers. Annually,
through fiscal 2002, we paid approximately $100,000 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, we stopped making payments toward the cost of such
policies and do not anticipate making any payments in the future.

The aggregate
amount of premiums paid by us for each policy is $500,000, the proceeds of
which, under collateral assignment agreements, will be first used to repay all
payments made by us for that policy. Additionally, beneficiaries of each policy
may not borrow against the amount paid by us. Both Linda Stern and Betty Meyers
have agreed to repay us for any shortfall between the cash surrender value of
their respective policy and the aggregate amount of premiums paid by us. At
June 3, 2006, the cash surrender value of such policies aggregated $1,756,000
and the aggregate amount of advances made by us totaled $1,000,000.

-54-

See Item 11.
Executive Compensation for a description of our consulting agreements with
Michael A. Davis, a former director, and Donald A. Meyer, a former director.
The information included therein is incorporated by reference into this Item
13.

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

-55-

Part IV

Item 15.
Exhibits and Financial Statement
  SchedulesPage(a) 1. 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

61Consolidated balance sheets  June 3, 2006 and May
  28, 2005

62Consolidated
  statements of earnings  Fifty-three weeks ended June 3, 2006
  and fifty-two weeks ended May 28, 2005 and May 29, 2004

64Consolidated
  statement of stockholders equity and comprehensive income 
  Fifty-three weeks ended June 3, 2006 and fifty-two weeks ended May 28, 2005
  and May 29, 2004

65Consolidated
  statements of cash flows  Fifty-three weeks ended June 3, 2006 and fifty-two
  weeks ended May 28, 2005 and May 29, 2004

67Notes to consolidated financial statements

69(a) 2.  Financial
  Statement SchedulesThe following consolidated financial statement
  schedule is included in Part IV of this report:Schedule II - Valuation and qualifying accounts

104All 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 Bylaws 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

Employment Agreement dated April 3, 2000 between
  E-Z-EM, Inc. and Anthony A. Lombardo

(f)-56-

Page(a) 3.  Exhibits (continued)10.5

Income Deferral
  Program

(g)10.6

Amendment dated
  August 24, 2004 to Employment Agreement dated April 3, 2000 between E-Z-EM,
  Inc. and Anthony A. Lombardo

(h)10.7

2004 Stock and
  Incentive Award Plan

(i)10.8

Asset Purchase
  Agreement dated January 16, 2005 by and among E-Z-EM, Inc. and ODell
  Engineering Ltd. and Philip ODell

(j)10.9

Form of
  Non-statutory Stock Option Agreement for 2004 Stock and Incentive Award Plan
  (Employee)

(k)10.10

Form of
  Non-statutory Stock Option Agreement for 2004 Stock and Incentive Award Plan
  (Member of the Board of Directors)

(l)10.11

Form of
  Incentive Stock Option Agreement for 2004 Stock and Incentive Award Plan
  (Employee)

(m)10.12

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

(n)10.13

Annual Incentive
  Plan

(o)10.14

Agreement for
  Purchase and Sale dated November 30, 2005 by and between E-Z-EM, Inc. and
  B&R Machine and Tool Corp.

(p)21

Subsidiaries of
  the Registrant

10523

Consent of
  Independent Registered Public Accounting Firm

10631.1

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)

10731.2

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

10932.1

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)

11132.2

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

112a)
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-57-

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, filed under Commission File No. 0-13003.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(e) to the
  Registrants Annual Report on Form 10-K for the fiscal year ended June 3, 2000.g)
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, filed under Commission File No. 0-13003.h)
Incorporated by reference to Exhibit 10.7 to the
  Registrants Annual Report on Form 10-K for the fiscal year ended May 29,
  2004.i)
Incorporated by reference to Exhibit 99.2 to the
  Registrants additional definitive proxy material filed with the Commission
  on October 25, 2004.j)
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.k)
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.l)
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.m)
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.n)
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.o)
Incorporated by reference to Exhibit 10.1 to the Registrants
  Quarterly Report on Form 10-Q for the quarterly period ended September 3,
  2005.p)
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.-58-

SIGNATURES

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

E-Z-EM, Inc.(Registrant)DateAugust
  17, 2006
/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.

DateAugust
  17, 2006
/s/ Paul S. EchenbergPaul S. Echenberg, Chairman of the
  Board, DirectorDateAugust
  17, 2006
/s/ Anthony A. LombardoAnthony A. Lombardo, President,
  Chief Executive Officer, Director
  (Principal Executive Officer)DateAugust
  17, 2006
/s/ Dennis J. CurtinDennis J. Curtin, Senior Vice
  President - Chief Financial Officer
  (Principal Financial and Chief Accounting Officer)DateAugust
  17, 2006
/s/ Robert J. BeckmanRobert J. Beckman, DirectorDateAugust
  17, 2006
/s/ James L. KatzJames L. Katz, DirectorDateAugust
  17, 2006
/s/ David P. MeyersDavid P. Meyers, Director-59-

DateAugust
  17, 2006
/s/ John T. PrestonJohn T. Preston, DirectorDateAugust
  17, 2006
/s/ James H. ThrallJames H. Thrall, DirectorDateAugust
  17, 2006
/s/ George P. WardGeorge P. Ward, Director-60-

REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and StockholdersE-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 3, 2006 and May 28, 2005, and the related consolidated statements of
earnings, stockholders equity and comprehensive income, and cash flows for the
fifty-three weeks ended June 3, 2006 and the fifty-two weeks ended May 28, 2005
and May 29, 2004.  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 opinions.

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 3, 2006 and May 28, 2005, and the consolidated results of their
operations and their consolidated cash flows for the fifty-three weeks ended
June 3, 2006 and the fifty-two weeks ended May 28, 2005 and May 29, 2004, in
conformity with accounting principles generally accepted in the United States
of America.

Our audits were made 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 the purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements.  For each of the
fifty-three weeks ended June 3, 2006 and the fifty-two weeks ended May 28, 2005
and May 29, 2004, 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 3, 2006, based on criteria
established in Internal Control - Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated August 4, 2006 expressed an
unqualified opinion thereon.

/s/ Grant Thornton LLP

Melville, New York
August 4, 2006

-61-

E-Z-EM, Inc. and
Subsidiaries

CONSOLIDATED
BALANCE SHEETS(in thousands)

June 3,
  2006

May 28,
  2005ASSETSCURRENT
ASSETSCash and cash
  equivalents

$
6,822

$
10,183Debt and equity
  securities, at fair value


33,446


18,419Accounts
  receivable, principally trade, net of allowance for doubtful accounts of $919
  in 2006 and $869 in 2005


20,909


17,677Inventories,
net


27,152


22,822Refundable
  income taxes


2,040


1,444Other current
  assets


5,012


4,705Total current
  assets


95,381


75,250PROPERTY, PLANT
  AND EQUIPMENT - AT COST, less accumulated depreciation and amortization


13,048


13,256INTANGIBLE
  ASSETS, less accumulated amortization of $848 in 2006 and $504 in 2005


4,123


4,867DEBT AND EQUITY
  SECURITIES, at fair value


1,088


746CASH SURRENDER
  VALUE OF LIFE INSURANCE


6,335


6,482OTHER ASSETS


3,817


1,454NONCURRENT
  ASSETS HELD FOR DISPOSAL





3,593Total
assets

$
123,792

$
105,648The accompanying notes are an integral part of these
financial statements.

-62-

E-Z-EM, Inc. and
Subsidiaries

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

June 3,
  2006

May 28,
  2005LIABILITIES AND
  STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes
payable






$
347Current
  maturities of long-term debt

$
31


99Accounts
payable


5,721


5,069Accrued
  liabilities


12,515


9,916Accrued income
  taxes


53


207Total current
  liabilities


18,320


15,638LONG-TERM DEBT, less current maturities





85OTHER NONCURRENT LIABILITIES


3,630


4,205Total
  liabilities


21,950


19,928COMMITMENTS 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
  10,862,899 shares in 2006 and 10,827,772 shares in 2005 (excluding 89,205 shares
  held in treasury in 2006 and 2005)


1,086


1,083Additional paid-in capital


30,071


28,478Retained earnings


64,263


54,497Accumulated other comprehensive income


6,422


1,662Total
  stockholders equity


101,842


85,720Total
  liabilities and stockholders equity

$
123,792

$
105,648The accompanying notes are an integral part of these
financial statements.

-63-

E-Z-EM, Inc. and Subsidiaries

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

Fifty-three
  weeks ended
  June 3,
  2006

Fifty-two weeks endedMay 28,
  2005

May 29,
  2004Net sales

$
138,369

$
113,075

$
100,609Cost of goods sold


78,649


65,039


60,552Gross profit


59,720


48,036


40,057Operating expensesSelling and
administrative


44,078


36,172


31,720Plant closings and operational
  restructuring costs


438


2,917


1,771Gain on sale of real
property


(1,205
)Research and
development


5,983


5,494


4,467Total operating
expenses


49,294


44,583


37,958Operating profit


10,426


3,453


2,099Other income
(expense)Interest income


831


365


788Interest expense


(441
)

(349
)

(316
)Other, net


(114
)

3,090


2,971Earnings from continuing
operations before
  income taxes


10,702


6,559


5,542Income tax provision


936


851


1,944Earnings from continuing
operations


9,766


5,708


3,598Earnings from discontinued
operation, net
  of income tax provision of $1,103 in 2005 and $1,238 in 2004





1,228


3,128NET EARNINGS

$
9,766

$
6,936

$
6,726Basic earnings per common
shareFrom continuing
operations

$
.90

$
.53

$
.35From discontinued operation,
net of income
  tax provision





.11


.30Net earnings

$
.90

$
.64

$
.65Diluted earnings per common
shareFrom continuing
operations

$
.88

$
.52

$
.34From discontinued operation,
net of income
  tax provision





.11


.29Net earnings

$
.88

$
.63

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

-64-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME

Fifty-three weeks ended June 3, 2006 and
fifty-two weeks
ended May 28, 2005 and May 29, 2004
(in thousands, except share data)

Common
        stock
    
    
    
    
    
    
    
    Accumulated
        other
        comprehensive
        income (loss)
    
    
    
    
    Compre-
        hensive
        income
        (loss)Additional
        paid-in
        capital
    
    Retained
        earningsShares
    
    Amount
    
    
    
    
    TotalBalance
        at May 31, 2003
    
    
    10,101,374
    
    $
    1,010
    
    $
    21,598
    
    $
    66,464
    
    $
    (470
    )
    $
    88,602Exercise
        of stock options, net of 8,828 shares tendered for exercise and withholding
        taxes
    
    
    624,146
    
    
    63
    
    
    3,046
    
    
    
    
    
    
    
    
    3,109Income
        tax benefits on stock options exercised
    
    
    
    
    
    
    
    
    1,912
    
    
    
    
    
    
    
    
    1,912Compensation
        related to stock option plans
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    5Issuance
        of stock
    
    
    10,096
    
    
    1
    
    
    123
    
    
    
    
    
    
    
    
    124Purchase
        of treasury stock
    
    
    (37,400
    )
    
    (4
    )
    
    (413
    )
    
    
    
    
    
    
    
    (417
    )Common
        stock subscription on effective date of subsidiarys initial public
        offering, net of financing costs and minority interest
    
    
    
    
    
    
    
    
    12,174
    
    
    
    
    
    
    
    
    12,174Net
        earnings
    
    
    
    
    
    
    
    
    
    
    
    6,726
    
    
    
    
    
    6,726
    
    $
    6,726Cash
        dividend ($.25 per common share)
    
    
    
    
    
    
    
    
    
    
    
    (2,552
    )
    
    
    
    
    (2,552
    )Unrealized
        holding gain on debt and equity securitiesArising
        during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,543
    
    
    3,543
    
    
    3,543Reclassification
        adjustment for gains included in net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,868
    )
    
    (1,868
    )
    
    (1,868
    )Increase
        in fair market value on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    182
    
    
    182Foreign
        currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235
    
    
    235
    
    
    235Comprehensive
        income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,818Balance
        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
    )-65-

E-Z-EM, Inc. and Subsidiaries

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

Fifty-three weeks ended June 3, 2006 and
fifty-two weeks
ended May 28, 2005 and May 29, 2004
(in thousands, except share data)

Accumulated
        other
        comprehensive
        income (loss)
    
    
    
    
    Compre-
        hensive
        income
        (loss)Common
        stock
    
    Additional
        paid-in
        capitalRetained
        earningsShares
    
    Amount
    
    
    
    
    TotalDecrease
        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
    
    $
    101,842The accompanying notes are an integral part
of this financial statement.

-66-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS(in
thousands)

Fifty-three
  weeks ended
  June 3,
  2006

Fifty-two weeks endedMay 28,
  2005

May 29,
  2004Cash flows from operating
activities:Net earnings

$
9,766

$
6,936

$
6,726Earnings from discontinued
operation, net
  of tax





(1,228
)

(3,128
)Adjustments to reconcile net
earnings to
  net cash provided by operating activitiesDepreciation and
amortization


3,673


3,159


2,992Impairment of long-lived
assets


183


500Gain on sale of
investments


(100
)

(3,270
)

(2,622
)Provision for doubtful
accounts


77


111


106(Gain) loss on sale of
assets


(1,157
)

68


(12
)Tax benefit on exercise of
stock options


1,228


1,358


1,912Deferred income tax
benefit


(1,208
)

(325
)

(574
)Stock option compensation
cost


86


427Other non-cash items


126


98


(480
)Changes in operating assets and
  liabilities, net of business divestedAccounts receivable


(3,309
)

(1,201
)

(306
)Inventories


(4,330
)

(3,857
)

935Other current assets


(1,072
)

(270
)

(814
)Other assets


(311
)

(457
)

(687
)Accounts payable


652


1,308


628Accrued liabilities


1,012


2,111


905Accrued income taxes


(154
)

32


162Other noncurrent
liabilities


308


96


250Net cash provided by operating
activities
  of discontinued operation





567


2,499Net cash provided by operating
activities


5,470


6,163


8,492Cash flows from investing
activities:Additions to property, plant
and equipment


(1,749
)

(4,163
)

(2,352
)Proceeds from sale of
assets


4,774


408


1,392Purchase of intangible
assets





(3,094
)Proceeds from sale of
investments


100


600Investments at cost





(100
)

(100
)Available-for-sale
securitiesPurchases


(212,986
)

(65,295
)

(23,189
)Proceeds from sale


197,959


62,670


21,981Net cash used in investing
activities of
  discontinued operation





(11,141
)

(996
)Net cash used in investing
activities


(11,902
)

(20,115
)

(3,264
)-67-

E-Z-EM, Inc. and Subsidiaries

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

Fifty-three
  weeks ended
  June 3,
  2006

Fifty-two weeks endedMay 28,
  2005

May 29,
  2004Cash flows from financing
activities:Repayments of debt

$
(476
)
$
(344
)
$
(425
)Proceeds from issuance of
debt





93


151Proceeds from repayment of debt
by
  discontinued operation





3,000Dividends paid





(3,220
)

(2,552
)Proceeds from exercise of stock
options


185


384


3,109Purchase of treasury
stock








(417
)Proceeds from issuance of stock
in
  connection with the stock purchase plan


3


10


8Cash distributed with
discontinued
  operation





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





18,958


(1,503
)Net cash provided by (used in)
financing
  activities


(288
)

10,428


(1,629
)Effect of exchange rate changes
on cash and
  cash equivalents


3,359


1,373


215INCREASE (DECREASE) IN CASH
AND CASH
  EQUIVALENTS


(3,361
)

(2,151
)

3,814Cash and cash
equivalentsBeginning of year


10,183


12,334


8,520End of year

$
6,822

$
10,183

$
12,334Supplemental disclosure of cash
flow
  information:Cash paid during the year
for:Interest

$
353

$
95

$
236Income taxes (net of refunds
of $2 in 2006
  and $269 in 2004)

$
1,798

$
2,283

$
1,311Supplemental disclosure of
non-cash
  financing activities:Purchase of intangible
assets




$
1,877Common stock subscription on
effective date
  of subsidiarys initial public offering, net of financing costs, excluding
  minority interest of $6,496







$
18,670The accompanying notes are an integral part
of these financial statements.

-68-

E-Z-EM, Inc. and
Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

June 3, 2006, May
28, 2005 and May 29, 2004

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 products used by radiologists,
  gastroenterologists and speech language pathologists primarily in screening
  for and diagnosing diseases and disorders of the gastrointestinal (GI)
  tract. Products are used for colorectal cancer screening, evaluation of
  swallowing disorders (dysphagia), and testing for other diseases and
  disorders of the GI system. The Company is also active in Healthcare
  Decontamination with its Reactive Skin Decontamination Lotion (RSDL) product
  - a liquid skin decontaminant that breaks down chemical agents such as Sarin
  or VX in seconds, leaving a non-toxic liquid that can be washed away with
  water. The Company also leverages its capacities in manufacturing, automation
  and quality control by offering contract manufacturing to third-party
  businesses.Prior to the spin-off of AngioDynamics, Inc.
  (AngioDynamics) on October 30, 2004, the Company was also a provider of
  innovative medical devices used in minimally invasive, image-guided
  procedures to treat peripheral vascular disease, or PVD. AngioDynamics
  designed, developed, manufactured and marketed a broad line of therapeutic
  and diagnostic devices that enabled interventional physicians (interventional
  radiologists, vascular surgeons and others) to treat PVD and other
  non-coronary diseases.Basis of 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). All significant intercompany balances and
  transactions have been eliminated.Operations outside the U.S. 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
  promoting and distributing products located in Japan; a subsidiary promoting
  and distributing products located in the United Kingdom; and a subsidiary
  promoting and distributing products located in Holland.Fiscal YearThe Company reports on a fiscal year that concludes
  on the Saturday nearest to May 31. Fiscal year 2006 ended on June 3, 2006,
  for a reporting period of fifty-three weeks. Fiscal years 2005 and 2004 ended
  on May 28, 2005 and May 29, 2004, respectively, for reporting periods of
  fifty-two weeks.-69-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

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 and
  certificates of deposit of $750,000 and $1,321,000 at June 3, 2006 and May
  28, 2005, respectively. The carrying amount of these financial instruments
  reasonably approximates fair value because of their short maturity. Foreign-denominated
  cash and cash equivalents aggregated $4,186,000 and $7,975,000 at June 3,
  2006 and May 28, 2005, respectively.As of June 3, 2006 and May 28, 2005, approximately
  $6,306,000 and $9,003,000, respectively, of cash held by financial institutions
  in the U.S. 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
  history and the customers current credit worthiness, 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 3,
  2006

May 28,
  2005(in thousands)Beginning balance

$
869

$
851Provision for doubtful accounts


77


111Write-offs


(27
)

(93
)Ending balance

$
919

$
869-70-

E-Z-EM, Inc. and Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

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 3, 2006 and May 28, 2005, reserve for excess and
  obsolete inventory was $2,053,000 and $1,902,000, 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 $2,929,000, $2,922,000 and $2,859,000
  for 2006, 2005 and 2004, 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
  weighted average amortization period for intangible assets was 5.66 and 6.64
  years at June 3, 2006 and May 28, 2005, respectively. Amortization of
  intangible assets was $744,000, $237,000 and $133,000 for 2006, 2005 and
  2004, respectively. Estimated amortization expense related to these
  intangibles for the succeeding five years is as follows:(in thousands)2007


$
7442008


$
7442009


$
7442010


$
7442011


$
744-71-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

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 (see Note F).Revenue RecognitionThe Company recognizes revenue on the date the
  product is shipped, which is when title passes to the customer. Shipping and
  credit terms are negotiated on a customer-by-customer basis. Products are
  shipped primarily to distributors at 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.Changes in our rebate allowance are as follows:June 3,
  2006

May 28,
  2005(in thousands)Beginning balance

$
1,397

$
1,611Provision for rebates


25,855


21,949Rebate credits issued


(25,386
)

(22,163
)Ending balance

$
1,866

$
1,397All 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.The Company records revenue on warranties and
  extended warranties on a straight-line basis over the terms of the related
  warranty contracts, which generally cover one year. Deferred revenues related
  to warranties and extended warranties were $688,000 and $505,000 at June 3, 2006
  and May 28, 2005, respectively, and are reported as a component of other
  current 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.-72-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

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 and administrative
  expenses, was $1,189,000, $680,000 and $435,000 in 2006, 2005 and 2004,
  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 has been established to reduce deferred tax assets as 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 CompensationAt June 3, 2006, the Company had three stock-based
  compensation plans, which are described more fully in Note Q. The Company
  accounts for these plans under the recognition and measurement principles of
  APB Opinion No. 25, Accounting for Stock Issued to Employees and related
  interpretations. Accordingly, no compensation expense has been recognized
  under these plans for options granted to employees and to members of the
  Board of Directors, as all such options granted had exercise prices equal to
  or greater than the market value of the underlying common stock on the dates
  of grant. Compensation expense of $86,000, $453,000 and $5,000 in 2006, 2005
  and 2004, respectively, was recognized under these and certain AngioDynamics
  plans for options granted to consultants and a former director serving as a
  consultant.-73-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

2005

2004(in thousands, except per share data)Net earnings, as
  reported

$
9,766

$
6,936

$
6,726Deduct: Total
  stock-based employee compensation expense determined under the fair value
  based method for all awards, net of income tax effects (see Note Q)


(2,393
)

(2,808
)

(563
)Pro forma net
  earnings

$
7,373

$
4,128

$
6,163Earnings per
  common shareBasic - as
  reported

$
.90

$
.64

$
.65Basic - pro
  forma


.68


.38


.60Diluted
- as reported

$
.88

$
.63

$
.63Diluted - pro
  forma


.66


.38


.58Earnings 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:2006

2005

2004(in thousands)Basic


10,849


10,762


10,344Effect of
  dilutive securities (stock options)


257


189


281Diluted


11,106


10,951


10,625Excluded from the calculation of earnings per common
  share, are 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 and 2004.-74-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

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. Management of the
  Company believes that the carrying value of notes payable and debt
  approximate their fair value based on rates available for debt with similar
  terms and maturities. Debt and equity securities are reported at their fair
  values based on market quotes.ReclassificationsCertain reclassifications have been made to the 2004
  amounts to conform to the 2005 presentation.Effects of Recently Issued
  Accounting PronouncementsIn March 2004, the Financial Accounting Standards
  Board (FASB) Emerging Issues Task Force (EITF) released Issue No. 03-1,
  The Meaning of Other-Than-Temporary Impairment and Its Application to
  Certain Investments. EITF 03-1 provides guidance for determining whether
  impairment for certain debt and equity investments is other-than-temporary
  and the measurement of an impaired loss. Certain disclosure requirements of
  EITF 03-1 were adopted in fiscal 2004, and the Company has complied with the
  new disclosure requirements in its consolidated financial statements. The
  recognition and measurement requirements of EITF 03-1 were initially
  effective for reporting periods beginning after June 15, 2004. In September
  2004, the FASB Staff issued FASB Staff Position (FSP) EITF 03-1-1, which
  delayed the effective date for certain measurement and recognition guidance
  contained in EITF 03-1. The FSP requires that entities continue to apply
  previously existing other-than-temporary guidance until a final consensus
  is reached. The Company does not anticipate that the issuance of a final
  consensus will materially impact its financial condition or results of
  operations.-75-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In November 2004, the FASB issued Statement of
  Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an
  amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No.
  151 will improve financial reporting by clarifying that abnormal amounts of
  idle facility expense, freight, handling costs, and wasted materials
  (spoilage) should be recognized as current-period charges and by
  requiring the allocation of fixed production overheads to inventory based on
  the normal capacity of the production facilities. SFAS No. 151 is effective
  for inventory costs incurred during fiscal years beginning after
  June 15, 2005. Earlier application is permitted for inventory costs
  incurred during fiscal years beginning after November 24, 2004. The
  adoption of this statement is not expected to have a material impact on the
  Companys financial condition or results of operations.In December 2004, the FASB issued SFAS No. 123 (R),
  Share-Based Payment, which revises SFAS No. 123, Accounting for
  Stock-Based Compensation and supercedes APB Opinion No. 25, Accounting for
  Stock Issued to Employees. SFAS No. 123 (R) establishes standards for the
  accounting for transactions in which an entity exchanges its equity
  instruments for goods or services. This statement focuses primarily on
  accounting for transactions in which an entity obtains employee services in
  share-based payment transactions. SFAS No. 123 (R) requires that the fair
  value of such equity instruments be recognized as an expense in the
  historical financial statements as services are performed. Prior to SFAS No.
  123 (R), only certain pro forma disclosures of fair value were required. In
  April 2005, the Securities and Exchange Commission adopted a new rule that
  amended the compliance dates of SFAS No. 123 (R) to require the
  implementation no later than the beginning of the first annual reporting
  period beginning after June 15, 2005. The adoption of this statement may have
  a material impact on the Companys financial condition and results of
  operations commencing with its fiscal quarter ending September 2, 2006.In December 2004, the FASB issued Financial Staff
  Position No. 109-2, Accounting and Disclosure Guidance for the Foreign
  Earnings Repatriation Provision within the American Jobs Creation Act of
  2004, (FSP No. 109-2). FSP No. 109-2 provides accounting guidance for the
  one-time tax deduction of 85% of certain foreign earnings that are
  repatriated, under a plan for reinvestment in the U.S., from controlled
  foreign subsidiaries in excess of a base amount as defined in the American
  Jobs Creation Act of 2004 (AJCA). The AJCA was enacted on October 22, 2004.
  FSP No. 109-2 allowed additional time for companies to evaluate the effects of
  the AJCA on any plan for reinvestment or repatriation of foreign earnings for
  purposes of applying FASB Statement No. 109. In May 2006, the Company adopted
  a domestic reinvestment plan, and its foreign subsidiary in the United
  Kingdom remitted cash dividends of $1,701,000 to the U.S. In conjunction with
  the repatriation, the Company recorded Federal income tax expense of $87,000
  based on current tax law.-76-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In June 2005, the FASB issued SFAS No. 154,
  Accounting Changes and Error Corrections, a replacement of APB Opinion No.
  20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting
  Changes in Interim Financial Statements. SFAS No. 154 changes the
  requirements for the accounting for and reporting of a change in accounting
  principle. Previously, most voluntary changes in accounting principles required
  recognition via a cumulative effect adjustment within net income for the
  period of the change. SFAS No. 154 requires retrospective application to
  prior periods financial statements, unless it is impracticable to determine
  either the period-specific effects or the cumulative effect of the change.
  SFAS No. 154 is effective for accounting changes made in fiscal years
  beginning after December 15, 2005; however, SFAS No. 154 does not change the
  transition provisions of any existing accounting pronouncements. The Company
  does not believe the adoption of SFAS No. 154 will have a material impact on
  its financial condition or results of operations.In June 2006, the FASB issued FASB Interpretation
  No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of
  FASB Statement No. 109, (FIN 48). FIN 48 clarifies the accounting for
  uncertainties in income taxes recognized in an enterprises financial
  statements. The Interpretation requires that the Company determine whether it
  is more likely than not that a tax position will be sustained upon
  examination by the appropriate taxing authority. If a tax position meets the
  more likely than not recognition criteria, FIN 48 requires the tax position
  be measured at the largest amount of benefit greater than 50 percent likely
  of being realized upon ultimate settlement. This accounting standard is
  effective for fiscal years beginning after December 15, 2006. The effect, if
  any, of adopting FIN 48 on the Companys financial position and results of
  operations has not been determined.NOTE B  DISCONTINUED OPERATIONOn 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 P).-77-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

NOTE B  DISCONTINUED OPERATION
  (continued)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.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 operation in the accompanying consolidated
  statements of earnings are as follows:2005

2004(in thousands)Net
salesFrom
  unaffiliated customers

$
22,342

$
48,162From
affiliates


420


893Total net
sales

$
22,762

$
49,055Earnings before
  income taxes

$
2,628

$
4,381Income tax
  provision


1,103


1,238Earnings before
  minority interest


1,525


3,143Minority
  interest


297


15Earnings from
  discontinued  operation

$
1,228

$
3,128For 2005, the results of
  operations for AngioDynamics represented twenty-two weeks activity.-78-

E-Z-EM, Inc. and
Subsidiaries

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 3, 2006, May
28, 2005 and May 29, 2004

NOTE B 
DISCONTINUED OPERATION (continued)

The following table
  represents summarized balance sheet information for AngioDynamics, including
  minority interest, as of the date of the spin-off, and is provided to assist
  in understanding the impact of the disposition on the consolidated balance
  sheet of the Company (amounts in thousands):ASSETSCash and cash equivalents

$
10,237Debt and equity securities


11,408Accounts receivable


7,202Inventory


9,200Other current assets


1,363Property, plant and equipment


7,559Other assets


1,954Total assets

$
48,923LIABILITIES AND STOCKHOLDERS EQUITYCurrent maturities of long-term debt

$
160Accounts payable


1,947Accrued liabilities


2,214Accrued income taxes


44Long-term debt


3,060Minority interest


8,133Stockholders equity


33,365Total liabilities and stockholders equity

$
48,923-79-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE C - COMPREHENSIVE INCOME

The
  components of comprehensive income, net of related tax, are as follows:2006

2005

2004(in thousands)Net earnings

$
9,766

$
6,936

$
6,726Unrealized holding gain on debt
and equity
  securities:Arising during
the year, net of income tax
  provision of $127, $124 and $539 in 2006, 2005 and 2004, respectively


215


1,148


3,543Reclassification adjustment for gains
  included in net earnings, net of income tax provision of $754 in 2004 (see Note
  G)





(3,270
)

(1,868
)Increase (decrease) in fair
value on
  interest rate swap:Arising during
the year, net of income tax
  provision (benefit) of ($32) and $106 in 2005 and 2004, respectively





(55
)

182Foreign currency translation
adjustments:Arising during
the year


4,545


2,044


235Comprehensive
income

$
14,526

$
6,803

$
8,818The
  components of accumulated other comprehensive income, net of related tax, are
  as follows:June 3,
  2006

May 28,
  2005(in thousands)Unrealized holding gain on debt
and equity
  securities, net of income tax liability of $308 and $181 at June 3, 2006 and
  May 28, 2005, respectively

$
523

$
308Cumulative translation
adjustments


5,899


1,354Accumulated
other comprehensive income

$
6,422

$
1,662-80-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

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 reactive skin decontamination lotion (RSDL) business and
  technology. These assets include 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 is payable 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 guaranteed payments totaled $4,877,000 and,
  together with transaction costs of $94,000, were allocated, based on their
  relative fair values as license agreements of $4,577,000 and customer
  relationships of $394,000 and reported in intangible assets in the
  accompanying balance sheet. The net present value of guaranteed future
  obligations totaling $1,877,000 was included in accrued liabilities and other
  noncurrent liabilities in the accompanying balance sheet at May 28, 2005
  (see Note M).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.-81-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE E  PLANT CLOSINGS AND OPERATIONAL
RESTRUCTURINGS

In February
  2006, the Executive Committee of the Board of Directors approved a plan to
  wind down and close the operations of Toho Kagaku Kenkyusho Co., Ltd.
  (Toho), a wholly owned Japanese subsidiary. The decision to close Toho
  resulted from an inability to generate income from operations and to grow the
  business due to a limited product offering and scope of operations. Also, a
  recent change in manufacturing location required a re-registration of Tohos
  principal products with Japanese regulatory authorities, resulting in a
  projected interruption of supply during the first quarter of fiscal 2007. Management
  planned a market withdrawal on a staged basis so that current inventory could
  be sold, accounts receivable collected and the property sold in an organized
  fashion, while also satisfying all outstanding liabilities. As a result of
  this plan, foreign currency translation losses of $183,000 included in
  accumulated other comprehensive income have been charged to results of
  operations for 2006 in accordance with EITF Issue No. 01-5,Application of FASB Statement No. 52
  to an Investment Being Evaluated for Impairment That Will Be Disposed Of.
  EITF 01-5 requires that accumulated foreign currency translation adjustments
  be included as part of the carrying amount of a foreign investment being
  evaluated for impairment under a committed plan of disposal. For 2006,
  project costs, primarily severance and the above-mentioned impairment,
  aggregated $333,000, and the Company expects to incur up to an additional
  $250,000 in project costs during the first quarter of 2007. The decision to
  close the Toho operations resulted in a deduction for U.S. Federal income tax
  purposes of approximately $7,296,000. For 2006, the Company recorded a
  Federal tax benefit of $2,481,000 relating to this tax deduction.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. At May 28, 2005, the liability for this restructuring,
  which is included in accrued liabilities, approximated $598,000. 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

May 28,
  2005(in thousands)Beginning
  balance

$
598Recorded


105

$
2,917Paid


(703
)

(2,319
)Ending
  balance

$


$
598-82-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE E  PLANT CLOSINGS AND OPERATIONAL
RESTRUCTURINGS (continued)

In May 2004,
  the Company completed the closing of its device manufacturing facility in San
  Lorenzo, Puerto Rico, as well as its heat-sealing operation in Westbury, New
  York, each of which was part of the E-Z-EM segment. The Company currently
  outsources these operations to a third-party manufacturer. This realignment
  was part of the Companys strategic plan of restructuring its operations to
  achieve greater efficiency. For 2004, project costs, primarily severance
  relating to 98 employees, aggregated $1,771,000. At May 29, 2004, the
  liability for the plant closing and operational restructuring, which was
  included in accrued liabilities, approximated $219,000. In May 2004, the
  Company sold the land and building encompassing its San Lorenzo facility for
  $1,250,000 and recognized a gain on the sale of $114,000.Changes in project
  costs are as follows:May 28,
  2005(in thousands)Beginning
  balance


$
219RecordedPaid



(219
)Ending
  balance


$
NOTE F - ASSET IMPAIRMENT CHARGES

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.-83-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE G - DEBT AND EQUITY SECURITIES

Debt 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

$
831Debt and
  equity securities at May 28, 2005 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

$
10,000

$
10,000Due after 20
years


8,260


8,260Other


159


159$
18,419

$
18,419NoncurrentAvailable-for-sale securities
(carried on
  the balance sheet at fair value)Equity
securities

$
257

$
746

$
489$
257

$
746

$
489-84-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

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. During
  2004, the Company sold 351,396 shares of its investment in Cedara Software
  Corporation and 40,000 shares of its investment in Vital Images, Inc.,
  resulting in a gain of $2,622,000, which is included in the consolidated
  statement of earnings under the caption Other, net.NOTE H - INVENTORIES

Inventories
  consist of the following:June 3,
  2006

May 28,
  2005(in thousands)Finished
  goods

$
12,246

$
10,305Work in
  process


608


573Raw
  materials


14,298


11,944$
27,152

$
22,822NOTE
I - PROPERTY, PLANT AND EQUIPMENT, AT COST

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

June 3,
  2006

May 28,
  2005(in thousands)Building and building
improvements

7 to 30 years

$
7,590

$
6,532Machinery and
equipment

3 to 10 years


33,818


30,893Leasehold
improvements

Shorter of
  lease term or
  useful life


1,398


1,14442,806


38,569Less accumulated depreciation
and
  amortization




30,980


26,65811,826


11,911Land




1,222


1,345$
13,048

$
13,256-85-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE J - INCOME TAXES

Income tax
  expense analyzed by category and by income statement classification is
  summarized as follows:2006

2005

2004(in thousands)CurrentFederal

$
851

$
291

$
1,409State and
local


76


55


41Foreign


1,217


830


1,068Subtotal


2,144


1,176


2,518Deferred


(1,208
)

(325
)

(574
)Total

$
936

$
851

$
1,944Temporary
  differences that give rise to deferred tax assets and liabilities are
  summarized as follows:June 3,
  2006

May 28,
  2005(in thousands)Deferred tax assetsTax operating
loss carryforwards

$
2,421

$
1,455Capital loss
carryforwards


332


141Tax credit
carryforwards


20


65Alternative
minimum tax credit carryforward


4


4Impairment of
long-lived assets


541


745Expenses
incurred not currently deductible


1,407


1,104Deferred
compensation costs


1,014


973Inventories


113


305Write-down of
investments


185


681Other


289


233Gross deferred
tax asset


6,326


5,706Deferred tax
liabilitiesExcess tax
over book depreciation


910


896Unrealized
investment gains


307


181Other


91


64Gross deferred
tax liability


1,308


1,141Valuation allowance


(2,413
)

(2,924
)Net deferred
tax asset

$
2,605

$
1,641-86-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE J - INCOME TAXES (continued)

If not
  utilized, the tax operating loss carryforwards of $2,421,000 will expire in
  various amounts over the years 2007 through 2026 and the tax credit
  carryforwards of $20,000 will expire in 2013. Capital loss carryforwards of
  $171,000 will expire in 2011 and capital loss carryforwards of $161,000 do
  not expire.At June 3,
  2006, undistributed earnings of certain foreign subsidiaries aggregated
  $27,337,000 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 $1,351,000. 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 3,
  2006

May 28,
  2005(in thousands)Current -
  Other current assets

$
1,209

$
1,378Noncurrent -
  Other assets


2,100


872Noncurrent -
  Other noncurrent liabilities


(704
)

(609
)Net deferred
  tax asset

$
2,605

$
1,641Earnings
  from continuing operations before income taxes for U.S. and international operations
  consist of the following:2006

2005

2004(in thousands)U.S.

$
7,452

$
549

$
2,356International


3,250


6,010


3,186$
10,702

$
6,559

$
5,542-87-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

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:2006

2005

2004(in thousands)Income tax provision

$
936

$
851

$
1,944Effect of:State income
taxes, net of Federal tax
  benefit


(53
)

(34
)

(28
)Research and
development tax credit


34


47


112Dividend
repatriation


(87
)Tax-exempt
portion of investment income


214


95


24Change in
valuation allowance


456


1,447


(247
)Tax benefit
associated with the closing of
  a foreign entity


2,481Utilization of
net operating loss
  carryforwards previously not given benefit by foreign entity








174Losses of
foreign entities generating no
  current tax benefit


(281
)

(62
)

(107
)Nontaxable
income


134


108


293Nondeductible
expenses


(233
)

(309
)

(167
)Other


38


87


(114
)Income tax provision at
statutory tax rate
  of 34%

$
3,639

$
2,230

$
1,884For 2006,
  the Companys unusually low effective tax rate of 9% differed from the
  Federal statutory tax rate of 34% due primarily to: i) a tax benefit of
  $2,481,000 for the closing of our Japanese subsidiary; and ii) the reversal
  of a valuation allowance of $456,000 for a previously impaired, non-core
  equity security, since it is now more likely than not that such benefit will
  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. For 2004, the Companys effective tax rate of
  35% differed from the Federal statutory tax rate of 34% due primarily to not
  currently deductible losses incurred at the Companys subsidiary in Puerto
  Rico and non-deductible expenses, partially offset by non-taxable imputed
  interest on loans to AngioDynamics of $596,000 and the utilization of
  previously unrecorded net operating loss carryforwards in certain foreign
  jurisdictions. The losses incurred at the Companys subsidiary in Puerto Rico
  resulted from the closing of this facility and the outsourcing of its
  operations.-88-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE J - INCOME TAXES (continued)

The
U.S. Federal income tax returns of the Company through May 31, 2002 are closed
by Internal Revenue Code regulations.

NOTE K - NOTES PAYABLE

Notes
payable consist of the following:

June 3,
  2006

May 28,
  2005(in thousands)Japanese
  bank note




$
255Other





92$


$
347The
  Companys Canadian subsidiary has available $1,817,000 (Canadian $2,000,000)
  under a line of credit with a bank, which is collateralized by accounts
  receivable and inventory and expires on October 31, 2006.During 2006,
  2005 and 2004, the weighted average interest rates on short-term debt were
  4.73%, 4.80% and 4.80%, respectively.NOTE L - LONG-TERM DEBT

Long-term
debt consists of the following:

June 3,
  2006

May 28,
  2005(in thousands)Japanese
  bank loan




$
95Other

$
31


8931


184Less current
  maturities


31


99$


$
85At
June 3, 2006, future minimum principal payments on long-term debt were as
follows:

(in
  thousands)2007


$
31$
31-89-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE M - ACCRUED LIABILITIES AND OTHER
NONCURRENT LIABILITIES

Accrued
liabilities consist of the following:

June 3,
  2006

May 28,
  2005(in thousands)Payroll and
  related expenses

$
7,976

$
6,110Liability
  for assets acquired (see Note D)


669


1,258Other


3,870


2,548$
12,515

$
9,916Other
noncurrent liabilities consist of the following:

June 3,2006

May 28,2005(in thousands)Deferred
  compensation

$
2,738

$
2,629Liability
  for assets acquired (see Note D)





634Deferred
  taxes


704


609Other


188


333$
3,630

$
4,205NOTE N - 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 2006, 2005 and 2004, profit-sharing contributions were $473,000, $466,000
  and $485,000, respectively, and 401(k) matching contributions were $297,000,
  $294,000 and $293,000, respectively. E-Z-EM also contributed $14,000, $29,000
  and $40,000 in 2006, 2005 and 2004, 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
  2006, 2005 and 2004, contributions were $251,000, $180,000 and $150,000,
  respectively.-90-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE O - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company
  is committed under non-cancelable operating leases for facilities,
  automobiles and equipment. During 2006, 2005 and 2004, aggregate rental costs
  under all operating leases were approximately $2,428,000, $1,766,000 and
  $1,658,000, respectively, of which approximately $28,000 was paid to related
  parties in 2004. 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 3, 2006, are summarized as
  follows:(in thousands)2007

$
1,8422008


1,7572009


1,6862010


1,7102011


303Thereafter


24$
7,322Purchase CommitmentsPurchase
  commitments for open purchase orders at June 3, 2006 for which goods and
  services had not been received were approximately $2,307,000.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, 2007. Aggregate minimum compensation commitments
  under this contract at June 3, 2006, and relating to fiscal 2007, are
  $720,000.Other MattersDuring 2004,
  the Company was notified by a competitor that it believed specific claims
  contained in issued United States patents owned by this competitor may be
  relevant to certain features of the Companys electromechanical injector
  systems. In August 2005, the Company entered into a licensing arrangement
  covering the design and form of its injector systems as of the date of such
  agreement. At May 28, 2005, the Company recorded an estimated liability in
  this matter of $350,000 that the Company believes relieved it of all claims
  relating to prior sales. This amount was paid in 2006.-91-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE O - COMMITMENTS AND CONTINGENCIES
(continued)

Litigation MattersThe 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.-92-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE O - 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 U.S., acquired SourceOne Healthcare
  Technologies, Inc. (SourceOne), the Companys largest distributor in the
  U.S. In 2006, 2005 and 2004, sales of products to Merry X-Ray, including
  sales to SourceOne before its acquisition by Merry X-Ray, represented 36%,
  37% and 38% of total sales, respectively. Approximately 39% of accounts
  receivable pertained to Merry X-Ray at June 3, 2006 and approximately 6% and
  31% of accounts receivable pertained to Merry X-Ray and SourceOne,
  respectively, at May 28, 2005. 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 2006,
  2005 and 2004, purchases of finished products from Coeur, Inc. represented
  12%, 13% and 9%, respectively, and purchases of finished product from Avail
  Medical Products, Inc. represented 9%, 11% and 3%, respectively, of total
  purchases.NOTE P  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.-93-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE P  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 2006, no shares were repurchased under this program. In
  aggregate, the Company has repurchased 74,234 shares of common stock for
  approximately $716,000 under this program.Cash DividendsIn June
  2003, the Companys Board of Directors declared a cash dividend of $.25 per
  outstanding share of the Companys common stock. The dividend, which
  aggregated $2,552,000, was distributed on August 1, 2003 to shareholders of
  record as of July 15, 2003. In June 2004, the Companys Board of Directors
  declared a cash dividend of $.30 per outstanding share of the Companys
  common stock. The dividend, which aggregated $3,220,000, was distributed on
  July 1, 2004 to shareholders of record as of June 15, 2004. Future dividends
  are subject to Board of Directors review of operations and financial and
  other conditions then prevailing.-94-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE Q  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
  incentive awards to employees, directors and other service providers. A total
  of 1,008,425 shares of the Companys common stock have been reserved for
  issuance under the 2004 Plan, including 576,346 shares and 82,079 shares
  reallocated from the 1983 Stock Option Plan and 1984 Directors and Consultants
  Stock Option Plan, respectively. A committee of the board administers the
  2004 Plan. The committee determines the vesting terms and exercise price of
  options granted under the 2004 Plan, but for all incentive stock options the
  exercise price must at least be equal to the fair market value of the
  Companys common stock on the date of grant. The term of an incentive stock
  option may not exceed ten years, and up to 800,000 shares of the Companys
  common stock may be issued upon exercise of incentive stock options. No
  awards may be granted under the 2004 Plan after October 26, 2014.1983 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 (given 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 stock options have an exercise price of not less than the market value of
  the shares on the date of grant. 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 (given 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 stock options have an exercise price of not less
  than the market value of the shares on the date of grant. 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.-95-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE Q  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 the
  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, each 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.-96-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE Q  STOCK COMPENSATION PLANS (continued)

A summary of
  the status of the Companys stock option plans as of June 3, 2006, May 28,
  2005 and May 29, 2004, and changes for the three years then ended, is
  presented below:2006

2005

2004Shares 
  (000)

Weighted-
  average
  exercise
  price

Shares
  (000)

Weighted-
  average
  exercise
  price

Shares
  (000)

Weighted-
  average
  exercise
  price1983 PlanOutstanding at beginning of
year


338

$
5.23


446

$
7.49


1,018

$
6.13Exercised


(7
)
$
3.64


(52
)
$
3.66


(570
)
$
5.08Forfeited














(2
)
$
5.63Expired








(21
)
$
4.22Spin-off adjustment








(35
)Outstanding at end of
year


331

$
5.27


338

$
5.23


446

$
7.49Options exercisable at
year-end


331

$
5.27


326

$
5.25


418

$
7.48Weighted-average fair value of
options granted during the year





None





None





None1984 PlanOutstanding at beginning of
year


74

$
6.77


148

$
6.76


202

$
6.05Granted










20

$
16.02


8

$
18.70Exercised


(12
)
$
4.29


(75
)
$
3.90


(62
)
$
5.98Forfeited









(1
)
$
12.04Expired


(11
)
$
5.37


(6
)
$
4.22Spin-off adjustment








(12
)Outstanding at end of
year


51

$
7.65


74

$
6.77


148

$
6.76Options exercisable at
year-end


51

$
7.65


68

$
6.27


131

$
5.92Weighted-average fair value of
options granted during the year





None




$
7.68




$
9.08-97-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE Q  STOCK COMPENSATION PLANS (continued)

2006

2005

2004Shares
  (000)

Weighted-
  average
  exercise
  price

Shares
  (000)

Weighted-
  average
  exercise
  price

Shares
  (000)

Weighted-
  average
  exercise
  price2004 PlanOutstanding at beginning of
year



548



$
13.94Granted



442



$
15.90




548



$
13.94Exercised



(8
)


$
14.23Forfeited



(6
)


$
14.27Outstanding at end of
year



976



$
14.82




548



$
13.94Options exercisable at
year-end



976



$
14.82




513



$
13.89Weighted-average fair value of
options granted during the year







$
7.62








$
6.55The
  following information applies to options outstanding and exercisable at June
  3, 2006:Outstanding

ExercisableRange of
  exercise prices

Number
  outstanding
  (000)

Weighted-
  average
  remaining
  life in
  years

Weighted-
  average
  exercise
  price

Number
  exercisable
  (000)

Weighted-
  average
  exercise
  price1983
  Plan$3.17
  to $3.64



46




3.99



$
3.44




46



$
3.44$5.50
  to $6.56



285




3.89



$
5.57




285



$
5.57331














3311984
  Plan$3.23
  to $3.80



8




3.32



$
3.47




8



$
3.47$4.20
  to $5.82



18




5.32



$
5.27




18



$
5.27$10.36
  to $12.10



25




8.15



$
10.81




25



$
10.8151














512004
  Plan$12.66
  to $14.68



741




8.67



$
14.08




741



$
14.08$15.43
  to $17.49



235




9.96



$
17.16




235



$
17.16976














976At June 3,
  2006, there were no shares available for granting of options under the 1983
  Plan and the 1984 Plan and 24,675 shares were available for grants of options
  and other awards under the 2004 Plan.-98-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE Q  STOCK COMPENSATION PLANS (continued)

The fair
  value of these options was estimated at the date of grant using the
  Black-Scholes option-pricing model assuming no expected dividends and the
  following weighted-average assumptions for all plans:2006

2005

2004Expected
  stock price volatility


48.90
%

49.48
%

50.98
%Risk-free
  interest rate


4.34
%

3.53
%

3.90
%Expected
  life of options


5 years


5 years


5 yearsOn 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 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 2006 and 2005, the Company recorded compensation
  charges of $86,000 and $427,000, respectively, in connection with this
  extension.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 2006, employees purchased 250 shares at $12.33 per
  share. Total proceeds received by the Company approximated $3,000.-99-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE R - RELATED PARTIES

The Company
  has split dollar life insurance arrangements with Linda B. Stern and Betty K.
  Meyers, which were entered into on May 27, 1998 and May 25, 1998,
  respectively. 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
  principal 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. Annually, through fiscal 2002, the Company paid approximately $100,000
  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
  aggregate amount of premiums paid by the Company for each policy is $500,000,
  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 each policy may not borrow against the amount paid by the
  Company. Both 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 3,
  2006 and May 28, 2005, the cash surrender value of such policies aggregated
  $1,756,000 and $1,558,000, respectively. At June 3, 2006 and May 28, 2005,
  advances of $1,000,000 are recorded in the consolidated balance sheets under
  the caption Other assets.Effective
  January 1, 2002, the Company entered into an agreement with Howard Stern,
  under which Mr. Stern agreed to provide certain services to the Company
  through December 31, 2004. The Company agreed to include Mr. Stern in its
  slate of directors for the 2002 annual meeting and to appoint Mr. Stern as
  Chairman of the Board for a one-year term beginning at that annual meeting.
  So long as Mr. Stern remained Chairman of the Company, he was entitled to
  receive twice the regular fees and other compensation (including cash, stock
  and options) paid to directors for service on the board. Under the terms of
  the agreement, Mr. Stern received 36 equal monthly payments of $20,833. Mr.
  Stern also received other benefits and perquisites and, so long as he
  remained Chairman, an annual sum of up to $80,000 for reimbursement of
  reasonable business expenses. This agreement expired on December 31, 2004 and
  was not renewed.Two former
  directors provided consulting services to the Company and to the Companys
  benefit plans during 2006, 2005 and 2004. Fees for such services were
  approximately $285,000, $290,000 and $267,000 during 2006, 2005 and 2004,
  respectively.-100-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE S - 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
  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 colorectal cancer
  screening, evaluation of swallowing disorders (dysphagia), and testing for
  other diseases and disorders of the GI system. The Company is also active in
  Healthcare Decontamination with its Reactive Skin Decontamination Lotion
  (RSDL) product - a liquid skin decontaminant that breaks down chemical agents
  such as Sarin or VX in seconds, leaving a non-toxic liquid that can be washed
  away with water. The Company also leverages its capacities in manufacturing,
  automation and quality control by offering contract manufacturing to
  third-party businesses. The entire business is focused in the following
  general areas: CT imaging, X-ray fluoroscopy, contract manufacturing,
  accessory medical devices, gastroenterology, virtual colonoscopy and defense
  decontaminants. The Companys primary business activity is conducted with
  radiologists and hospitals throughout the U.S. and with distributors outside
  of the U.S.Geographic AreasThe
  following geographic area data includes net sales generated by and long-lived
  assets employed in operations located in each area:2006

2005

2004(in thousands)Net salesU.S.
operations

$
111,952

$
90,901

$
81,332International
operations:Canada


55,912


37,253


31,500Other


13,406


12,008


10,044Eliminations


(42,901
)

(27,087
)

(22,267
)Total net
  sales

$
138,369

$
113,075

$
100,609Long-lived
  assetsU.S.
operations

$
6,957

$
7,764

$
7,242International
operations:Canada


9,941


9,752


7,689Other


797


1,067


1,039Total
  long-lived assets

$
17,695

$
18,583

$
15,970-101-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

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

Net Sales by Major Product LinesThe
  following table sets forth net sales to external customers by major product
  lines:2006

2005

2004(in thousands)CT Imaging Contrast

$
36,047

$
28,115

$
21,125CT Injector
  Systems


23,088


17,551


13,273Total CT
  Imaging


59,135


45,666


34,398X-Ray
  Fluoroscopy


45,095


40,649


40,810Contract
  Manufacturing


12,561


9,183


8,054Accessory
  Medical Devices


5,235


5,328


5,351Gastroenterology


5,019


4,627


4,246Virtual
  Colonoscopy


4,140


3,654


3,698Defense
  Decontaminants


3,506


956


1,164Other


3,678


3,012


2,888$
138,369

$
113,075

$
100,609NOTE T - QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)

Quarterly
  results of operations for 2006 and 2005 were as follows:2006First
  quarter

Second
  quarter

Third
  quarter

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

$
34,784

$
34,204

$
32,265

$
37,116Gross profit


15,873


15,328


12,778


15,741Net earnings


2,553


1,525


4,342


1,346Earnings per
  common shareBasic


.24


.14


.40


.12Diluted


.23


.14


.39


.12-102-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

June 3, 2006, May 28, 2005 and May 29, 2004

NOTE T - QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)

2005First
  quarter

Second
  quarter

Third
  quarter

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

$
24,012

$
26,222

$
30,833

$
32,008Gross profit (1)


10,016


11,862


12,727


13,431Earnings from continuing
operations


631


823


2,918


1,336Earnings from discontinued
operation


620


608Net earnings


1,251


1,431


2,918


1,336Basic earnings per common
shareFrom continuing
operations


.06


.08


.27


.12From discontinued operation,
net of income
  tax provision


.06


.05Net earnings


.12


.13


.27


.12Diluted earnings per
common share (2)From continuing
operations


.06


.08


.27


.12From discontinued operation,
net of income
  tax provision


.05


.05Net earnings


.11


.13


.27


.12(1)
Reclassified
  to reflect the 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 fiscal 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
  fiscal 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. All involved personnel have been
  suspended pending a disciplinary hearing, as required by UK law, to determine
  appropriate disciplinary action. In July 2006, the accounting irregularity
  was identified 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 fiscal
  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. 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.-103-

E-Z-EM, Inc. and Subsidiaries

SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS(in thousands)

Column A

Column B

Column C

Column D

Column EAdditionsDescription

Balance
  at
  beginning
  of period

(1)
  Charged to
  costs and
  expenses

(2)
  Charged to
  other
  accounts-
  describe

Deductions-
  describe

Balance
  at end
  of
  periodAllowance for doubtful
accountsFifty-two weeks ended May 29,
2004

$
798

$
106




$
53
(a)
$
851Fifty-two weeks ended May 28,
2005

$
851

$
111




$
93
(a)
$
869Fifty-three weeks ended June 3,
2006

$
869

$
77




$
27
(a)
$
919Rebate
allowanceFifty-two weeks ended May 29,
2004

$
1,159

$
20,918




$
20,466
(b)
$
1,611Fifty-two weeks ended May 28, 2005

$
1,611

$
21,949




$
22,163
(b)
$
1,397Fifty-two weeks ended June 3,
2006

$
1,397

$
25,855




$
25,386
(b)
$
1,866(a)
Amounts written off as
  uncollectible.(b)
Represents rebate credits
  issued.-104-