# UNITED STATES

# SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

Commission File Number - 1-10184ABATIX CORP.
                                          (Exact name of registrant as specified in its charter)Delaware
(State or other jurisdiction of incorporation or organization) 75-1908110
(I.R.S. Employer Identification Number)8201 Eastpoint Drive, Suite 500, Dallas, Texas
(Address of principal executive offices)75227
(Zip Code)

Registrant's telephone number, including area code:  (214) 381-1146


Securities registered pursuant to Section 12 (b) of the Act:  None


Securities registered pursuant to Section 12 (g) of the Act:  Common Stock

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 twelve
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing for the past 90 days. Yes [X]
No [ ]

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

1,711,148 shares of common
stock, $.001 par value, were issued and outstanding on March 19, 2002.

The aggregate market value of
the Registrants common stock held by nonaffiliates of the Registrant as of
the close of business on March 19, 2002 (an aggregate of 800,095 shares out of a
total of 1,711,148 shares outstanding at that time) was $4,120,489 computed by
reference to the closing bid price of $5.150 on March 19, 2002. 

Portions of the Registrants proxy statement for its 2002 annual meeting of stockholders
are incorporated into Part III, herein, by this reference thereto.

PART I

Item 1.  Business

(a)      Development of Business

Abatix Corp. (the
Company) markets and distributes personal protection and safety
equipment and durable and nondurable supplies predominantly to the environmental
industry, the industrial safety industry and, combined with tools and tool
supplies, to the construction industry.

The Company began
operations in May 1983 as a supply company located in Dallas, Texas, and was
originally incorporated in Texas as T&T Supply Company, Inc. in March 1984.
Abatix was incorporated in Delaware on December 5, 1988 to effect and complete
an Agreement and Plan of Merger with T&T Supply on December 9, 1988. In
March 1989, the Company completed its initial public offering of its securities.

During 1994, because of
increased purchasing power, the Company, through its wholly owned subsidiary
International Enviroguard Systems, Inc. (IESI), began to import
certain products sold through not only the Companys distribution channels,
but also other distribution companies not in direct competition with Abatix.

Effective January 1, 1999,
the Company consummated an Asset Purchase Agreement with Keliher Hardware
Company, a California corporation, pursuant to which the Company assumed the
operations of Keliher. Keliher, based in Los Angeles, California, is an
industrial supply distributor, primarily for the construction and industrial
markets. The estimated fair value of the assets acquired was approximately
$975,000. The aggregate purchase price was settled with the assumption of
certain liabilities (approximately $900,000), the issuance of 23,500 shares of
the Companys $.001 par value common stock at a value of $3.45 per share
and the remainder in cash. This acquisition has been accounted for using the
purchase method.

On April 6, 1999, the
Company closed its Denver facility. The Denver facility had sales of
approximately $353,000 and $1,449,000 for the years ended December 31, 1999 and
1998, respectively. The Company did not incur any significant charges related to
the shutdown.

Effective June 1, 1999, the
Company consummated an Asset Purchase Agreement with North State Supply Co. of
Phoenix, an Arizona corporation, pursuant to which the Company assumed the
operations of North State, a construction supply distributor. The estimated fair
value of the identifiable assets acquired was approximately $1,800,000. The
aggregate purchase price was settled with the assumption of certain liabilities
(approximately $785,000) and approximately $2,100,000 in cash. This acquisition
has been accounted for using the purchase method.

The Company intends to
expand and diversify the revenue base through the expansion of product lines,
hiring additional personnel, and additional acquisitions, if appropriate. In
addition, the Company developed an e-commerce solution to help solidify
relationships with the existing customer base and expand its geographic
presence.

(b)      Financial Information About Operating Segments

Information about the
Companys operating segments is included in the Notes to the Consolidated
Financial Statements at Item 14.

(c)   Narrative Description of Business

Based on 2001 sales,
approximately 49 percent of the Companys products are sold to
environmental contractors, 19 percent to construction related firms, 19 percent
to the industrial safety market, and 13 percent to other firms. The Company
believes a majority of its sales for the foreseeable future will continue to be
made to environmental contractors. The Company considers its relationship with
its customers to be excellent.

Environmental Industry Background

Asbestos Abatement Industry

Between 1900 and the early
1970s, asbestos was extensively used for insulation and fireproofing in
industrial, commercial and governmental facilities as well as private residences
in the United States and in other industrialized countries. In the
mid-1980s it was estimated that in the United States, approximately 20
percent of all buildings, excluding residences and schools, contained friable
asbestos-containing materials that were brittle, readily crumble and were
susceptible to the release of asbestos dust. Various diseases such as
asbestosis, lung cancer and mesothelioma, linked to the exposure to airborne
asbestos, and the presence of asbestos in insulation, service applications and
finishing materials have given rise to the concern about exposure to asbestos.
Public awareness of the health hazards posed by asbestos increased as the
results of continuing medical studies became widely known.

Maintenance, repair,
renovation or other activities can disturb asbestos-containing material and, if
disturbed or damaged, asbestos fibers become airborne and pose a hazard to
building occupants and the environment. In October 1986, Congress passed the
Asbestos Hazard Emergency Response Act, which mandates inspections for asbestos,
the adoption of asbestos abatement plans and the removal of asbestos from
schools and facilities scheduled for demolition. In addition, state and local
governments have also adopted asbestos-related regulations.

Notwithstanding legislative
impetus and continued awareness of health related hazards associated with
asbestos, the budgetary constraints and the lack of improvement in the
industrial sectors continue to limit the number and scope of asbestos abatement
projects.

Lead Abatement Industry

The hazards of lead-based paint have been known for many years; however, the federal and state regulations
requiring identification, disclosure and cleanup have been minimal. In early
1996, the EPA and the Department of Housing and Urban Development unveiled rules
regarding lead-based paint in the residential markets. These rules give
homebuyers the right to test for lead-based paint before any contracts are
signed. In addition, although a landlord or home seller is not required to test
for lead-based paint, the rules do require disclosure of a known lead hazard.

Many asbestos abatement
contractors added lead abatement to their range of services in an attempt to
enter a market considered being in its infancy. The asbestos abatement
contractors bring equipment, a trained labor force, and experience working in a
regulatory environment to the lead abatement industry.

Mold Remediation Industry

Although mold remediation has been around for years, recent litigation surrounding the health hazards of
human exposure to mold has created public awareness and is forcing property
owners and the construction industry to deal with the problem. To grow, mold
needs moisture, a carbon source (wood, plasterboard, natural fibers, or any
organic matter), lack of air movement and lack of light. The energy crisis in
the 1970s inspired many energy efficiency programs, including the building
of structures that promoted less air movement. When a moisture source is
introduced, the conditions are ripe for mold growth.

Although there are
approximately 100,000 species of fungi, about 100 are considered to be
pathogenic to humans. Currently, the regulations concerning mold levels or
remediation are few; however, there has been some discussion at the EPA and
state government levels about defining the level of mold spores considered to be
hazardous.

Many asbestos abatement
contractors added mold remediation to their range of services. Beginning in late
2000 the Company began to see activity from this industry and anticipates
continued growth for the immediate future.Construction Tools Supply Industry

Besides the normal hand and power tools, and associated consumable parts, supplied to the construction
industry, the EPA and OSHA have also established certain rules and regulations
governing the protection of the environment and the protection of workers in
this industry.

Currently, the Company
supplies the construction tools industry in its Las Vegas, Los Angeles, and
Phoenix facilities and on a limited basis from its other facilities. This
industry is directly tied to the local economies and more specifically, the real
estate conditions within those markets. The condition of the real estate
industry in the Companys markets remains stable.

Industrial Safety Industry

The EPA and the Occupational Safety and Health Administration (OSHA) have
established numerous rules and regulations governing environmental protection
and worker safety and health. The demand for supplies and equipment by U.S.
businesses and governments to meet these rules and regulations has resulted in
the creation of a multi-billion dollar industry.

As research identifies the
degree of environmental or health risk associated with various substances and
working conditions, new rules and regulations can be expected. These actions
inevitably will require more expenditure for supplies and equipment for
handling, remediation and disposal of hazardous substances and the creation of
safe living and working conditions.Geographic Distribution of Business

With the acquisition of
Keliher and North State in 1999, the Company distributes over 22,000 industrial,
construction tool, personal protection, safety and hazardous waste remediation
products to approximately 7,300 customers primarily located in the Southwest,
Midwest and Pacific Coast.

The Company maintains
sales, distribution and warehouse centers in Los Angeles and San Francisco,
California, in Dallas and Houston, Texas, in Phoenix, Arizona, in Las Vegas,
Nevada, and in Seattle, Washington.Equipment and Supplies

An estimated 38 percent of
the Companys current year sales were safety products, 31 percent were
environmental products, while construction tools and supplies accounted for 22
percent of its sales. The remaining 10 percent of sales were miscellaneous
products used by environmental contractors, construction contractors and
industrial manufacturing facilities.

The Company buys products
from manufacturers based on orders received from its customers as well as
anticipated needs based on prior buying patterns, customer inquiries and
industry experiences. The Company maintains an inventory of disposable products
and commodities as well as low cost equipment items. Approximately 75 and 78
percent of the Companys sales for 2001 and 2000, respectively, are of
disposable items and commodity products, which are sold to customers at unit
prices ranging from under $1.00 to $50.00. The balance of sales is attributable
to items consisting of lower priced equipment beginning at $20.00 to major
product assemblies such as decontamination trailers which retail for
approximately $15,000. The Company currently does not manufacture or lease any
products and does not perform any repairs thereon. The Company distributes, on a
limited basis, disposable items under its own private label.

Except with regard to
certain specialty equipment associated with asbestos abatement activities such
as filtration, vacuum and pressure differential systems, many of the
Companys products can be used interchangeably within many of the
industries it supplies. Equipment distributed by the Company includes
manufacturers product descriptions and instructions pertaining to use.Marketing

The Companys
marketing program is conducted by its sales representatives, as well as by
senior management and the leaders at each of its operating facilities. The sales
representatives are compensated by a combination of salary and/or commission,
which is based upon negotiated sales standards.

The Company maintains
24-hours-a-day/7-days-a-week telephone service for its customers and typically
delivers supplies and equipment within two or three days of receipt of an order.
The Company is prepared to provide products on an expedited basis in response to
requests from customers who require immediate deliveries because their work is
performed during non-business hours, involves substantial costs because of the
specialized labor crews involved or may arise on short notice as a result of
exigent conditions.

The Company also has a web
site, www.abatix.com, that allows customers to place orders on-line. Currently
the web site has approximately 5,000 products; the remaining products will be
added over the next twelve months. In addition to on-line ordering, the web site
has current industry and Company information. Backlog

Substantially all the
Companys products are shipped to customers within 48 hours following
receipt of the order, therefore backlog is not material to the Companys
operations.Inflation

The inflation rate for the
U.S. economy has been relatively low over the past several years, with the 2001
inflation rate being 1.6 percent. The 2002 inflation rate is projected to be in
the 2 to 3 percent range. The Company believes inflation has not been a
substantial concern nor will inflation have a material impact to the
Companys operations or profitability in the near term, if it remains
stable. In the event of increased inflation, the Company anticipates it would be
able to pass along increases in product costs to its customers in the form of
higher selling prices, thereby having little effect on product margins. Environmental Impact

The Company distributes a
variety of products in the asbestos abatement industry all of which require the
Company to maintain on file Material Safety Data Sheets (MSDS) that
inform all purchasers and users of any potential hazards which could occur if
the products spilled or leaked. Although the Company provides no assurance, it
reviews all products that could have a potential for environmental hazards and
tries to ensure the products are safe for on site storage and distribution. The
Company currently distributes no products it believes would create an
environmental hazard if leaked or spilled. The Company has safety procedures in
place to minimize any impact if a product were to leak or spill. Seasonality

Historically, the
environmental services and supply business has been seasonal as a result of the
substantial number of contracts performed in educational facilities during the
summer months or during other vacation periods. The Company believes seasonality
is not a major characteristic in the non-educational or private sector, which
includes the industrial, commercial and residential markets. In addition to the
private sector environmental business, the Companys expansion of the
construction and industrial safety supply markets has mitigated most seasonal
impacts of government environmental projects on the Companys sales.

The Companys
profitability historically increases in the second and third quarters, relative
to the first and fourth quarters. This increase is attributable to the small
increase in revenues during the second and third quarters without a
corresponding increase in costs, as fixed costs represent a majority of total
general and administrative costs.Government Regulation

As a supplier of products
manufactured by others to the environmental supply, construction tool and
industrial safety industry, the Companys internal operations are not
substantially affected by federal laws and regulations including those
promulgated by the EPA and OSHA. Most of the contractors and other purchasers of
the Companys equipment and supplies are subject to various government
regulations. Developments in legislation and regulations affecting manufacturers
and purchasers of the Companys products could have a substantial effect on
the Company.Competition

The environmental supply,
industrial safety and construction tools supply businesses are highly
competitive. These markets are served by a limited number of large national
firms as well as many local firms, none of which can be characterized as
controlling the market. The Company competes on the basis of price, delivery,
credit arrangements and product variety and quality. Substantial regulatory or
economic barriers to entry do not characterize the Companys business.
Furthermore, additional companies could enter any of these industries and may
have greater financial, marketing and technical resources than the Company. Employees

As of February 28, 2002,
the Company employed a total of 127 full time employees including 3 executive
officers, 19 managers, 61 administrative and marketing personnel and 44 clerical
and warehouse personnel. The Company believes relations with its employees are
excellent.

Item 2.  Description of Properties

The Companys
headquarters are located in Dallas, Texas and occupy approximately 6,400 square
feet of leased general office space. This lease expires in February 2005. As of
December 31, 2001, the seven distribution facilities lease a total of
166,235 square feet of general office and warehouse space. These facilities
range in size from 9,000 square feet to 33,600 with leases expiring between May
2002 and November 2006.

Item 3.  Legal Proceedings

None

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

None

PART II

Item 5.  Market for the Registrant's Common Stock and Related Stockholder Matters

(a)     The Companys
common stock trades on The Nasdaq SmallCap Market tier of The Nasdaq Stock
Market under the symbol ABIX. The following table sets forth the
high and low bid prices for the common stock for the periods indicated. These
quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.

`Common Stock
                                             Bid Price
                                   -----------------------------
          2000                        High              Low
--------------------------         ------------      -----------
      First Quarter             $        3.375    $       1.000
     Second Quarter                      1.844            0.250
      Third Quarter                      2.500            1.344
     Fourth Quarter                      2.250            1.063

          2001
--------------------------
      First Quarter             $        1.844    $       1.063
     Second Quarter                      2.300            1.760
      Third Quarter                      3.400            1.870
     Fourth Quarter                      6.250            2.900`

(b)    As of March 19, 2002, the approximate number of holders of record of the Company's common stock was 600.

(c)    The Company has never
paid cash dividends on its common stock. The Company presently intends to retain
any future earnings to finance the expansion of its business or repay borrowings
on its lines of credit and does not anticipate that any cash dividends will be
paid in the foreseeable future. Future dividend policy will depend on the
Companys earnings, capital requirements, expansion plans, financial
conditions, and other relevant factors.

The tables below set forth,
in summary form, selected financial data of the Company. This data, which is not
covered by the independent auditors report, should be read in conjunction
with the consolidated financial statements and notes thereto which are included
elsewhere herein (amounts in thousands except per share amounts).

`Year Ended December 31,
                                             ------------------------------------------------------------------------
                                               2001            2000           1999           1998            1997
                                             ----------     -----------    -----------     ----------     -----------
Selected Operating Results:
   Net sales                              $     54,726   $      47,987  $      44,576   $     37,684   $      34,341
   Gross profit                           $     15,384   $      12,982  $      12,217   $     10,837   $      10,037
                                             ----------     -----------    -----------     ----------     -----------
   Net earnings                           $      1,206   $         598  $         461   $      1,167   $         841
                                             ==========     ===========    ===========     ==========     ===========

Basic and diluted net earnings per
    common  share                         $        .70   $         .35  $         .26   $        .60   $         .43
                                             ==========     ===========    ===========     ==========     ===========
Basic and diluted weighted average
   shares outstanding                            1,711           1,711          1,779          1,934           1,934
                                             ==========     ===========    ===========     ==========     ===========

                                                                       As of December 31,
                                             ------------------------------------------------------------------------
                                               2001            2000           1999           1998            1997
                                             ----------     -----------    -----------     ----------     -----------
Selected Balance Sheet Data:
   Current assets                         $     14,529   $      12,075  $      13,220   $      9,918   $       9,003
   Current liabilities                           8,603           7,411          9,171          4,408           4,676
   Total assets                                 16,441          14,042         15,204         10,596           9,854
   Total liabilities                             8,603           7,411          9,171          4,408           4,676
   Retained earnings                             7,518           6,312          5,714          5,252           4,085
   Stockholders' equity                          7,838           6,631          6,033          6,187           5,178`

## Year Ended
December 31, 2001 Compared to Year Ended December 31, 2000

Consolidated net sales for
the year ended December 31, 2001, increased 14 percent to $54,726,000 from
$47,987,000 in 2000. The Abatix operating segment net sales grew 19 percent to
$52,461,000 in 2001 and the IESI operating segment net sales decreased 41
percent to $2,265,000 in 2001. Sales were significantly impacted by the
increasing awareness of toxic molds in homes and buildings and by the continuing
cleanup from the effects of Tropical Storm Allison on the Houston area. The
decrease in IESI sales is due to the exit from a distribution channel during the
second quarter of 2001.

Sales to the mold
remediation, industrial safety and construction tools supply markets are
increasing both in absolute amounts and as a percentage of revenues to the
Company. The acquisitions of Keliher and North State, other potential
acquisitions, additional salespeople and internal growth in these markets should
decrease the dependency of the Company on any single product, geographic market
or on sales to the asbestos abatement industry. In addition, the Company
implemented an e-commerce solution in 2001 to help solidify relationships with
the existing customer base and expand its geographic presence.

Gross profit for 2001 of
$15,384,000 increased 19 percent from gross profit in 2000 of $12,982,000 due to
increased sales volume. The Companys gross profit margins, expressed as a
percentage of sales, were approximately 28 percent for 2001 and 27 percent for
2000. Although overall margins are expected to remain at their current levels in
2002, competitive pressures could negatively impact any and all efforts by the
Company to maintain or improve product margins.

Selling, general and
administrative expenses for 2001 of $12,991,000 increased 14 percent over 2000
expenses of $11,395,000. These expenses were 24 percent of sales for 2001 and
2000. Selling, general and administrative expenses are expected to be in the 24
to 25 percent range for 2002.

Interest expense of
$380,000 decreased $182,000 from 2000 interest expense of $562,000 primarily due
to lower interest rates. The Companys credit facilities are variable rate
notes tied to the Companys lending institutions prime rate.
Increases in the prime rate could negatively affect the Companys earnings.

Net earnings for the year
ended December 31, 2001, of $1,206,000 or $.70 per share increased $608,000 from
net earnings of $598,000 or $.35 per share in 2000. The increase in net earnings
is primarily due to the higher sales volume and lower interest expense,
partially offset by the higher general and administrative costs.

## Year Ended
December 31, 2000 Compared to Year Ended December 31, 1999

Consolidated net sales for
the year ended December 31, 2000, increased 8 percent to $47,987,000 from
$44,576,000 in 1999. The Abatix operating segment net sales grew 5 percent to
$44,145,000 in 2000 and the IESI operating segment net sales increased 58
percent to $3,842,000 in 2000. The increase in consolidated net sales resulted
from efforts to further expand and diversify the customer base, including the
introduction of a new distribution channel for IESI and the 1999 acquisition of
North State, a construction supply distributor. The acquisition provides a
larger customer base and the ability to cross sell products to both North State
and Abatix customers. The increase in net sales is also a result of the stable
economic conditions in the geographic regions serviced by the Companys
facilities. The increase in net sales for 2000 was partially offset by an 11
percent decline in sales to asbestos abatement contractors and by the April 1999
closure of the Companys Denver facility. This facility had 1999 revenues
of approximately $353,000.

Gross profit for 2000 of
$12,982,000 increased 6 percent from gross profit in 1999 of $12,217,000 due to
increased sales volume. As expected, margins varied from location to location
due to sales mix and local market conditions. The Companys gross profit
margins, expressed as a percentage of sales, were approximately 27 percent for
2000 and 1999.

Selling, general and
administrative expenses for 2000 of $11,395,000 increased 3 percent over 1999
expenses of $11,083,000. The increase was attributable primarily to the
inclusion of North State costs and increased rent due to larger facilities and
higher rent rates for three distribution centers and the corporate offices.
Leases on three facilities were renegotiated at the end of 1999. Rental rates
are higher with the new leases as a result of improved real estate conditions.
These expenses were 24 percent of sales for 2000 and 25 percent of sales for
1999.

Interest expense of
$562,000 increased $175,000 from 1999 interest expense of $387,000 primarily due
to the additional borrowings used to finance the acquisition of North State and
higher interest rates.

Net earnings for the year
ended December 31, 2000, of $598,000 or $.35 per share increased $137,000 from
net earnings of $461,000 or $.26 per share in 1999. The increase in net earnings
is primarily due to the higher sales volume, partially offset by the higher
general and administrative costs and the increased interest expense.

## Liquidity and
Capital Resources

The Companys working
capital requirements historically result from the growth of its accounts
receivable and inventories, partially offset by increased accounts payable and
accrued expenses, associated with increases in sales volume. Net cash used in
operations during 2001 of $422,000 resulted principally from the increase in
accounts receivable and inventories, net of the increase of net earnings
adjusted for depreciation and amortization. The increase in accounts receivable
is attributed to higher sales in November and December 2001 versus 2000. Cash
flow from operations for the entire year of 2002 is expected to be positive,
although at any given point, it may be negative.

Cash requirements for
non-operating activities during 2001 resulted primarily from the purchases of
property and equipment. In addition, net working capital line of credit
borrowings occurred primarily as a result of the higher levels of accounts
receivable and inventory and purchases of fixed assets. The equipment purchases
in 2001 were primarily costs associated with building the Companys
e-commerce solution and delivery vehicles.

The development of the
Companys e-commerce solution required a significant capital outlay in
2001. This solution, which could cost $100,000 to market and maintain in 2002,
is expected to provide customers a more efficient method of doing business with
Abatix and could provide some cost savings in the future, as well as expand the
customer base.

In August 2001, the Company
increased its working capital line of credit at a commercial lending institution
from $7,000,000 to $8,000,000 to help fund additional working capital
requirements due to higher sales. The working capital line of credit agreement
allows the Company to borrow up to 80 percent of the book value of eligible
trade receivables plus the lesser of 40 percent of eligible inventory or
$2,000,000. As of March 19, 2002, there are advances outstanding under this
credit facility of $4,816,000. Based on the borrowing formula, the Company had
the capacity to borrow an additional $3,184,000 as of March 19, 2002. The Company
also maintains a $550,000 capital equipment credit facility providing for
borrowings at 80 percent of cost on purchases. The advances outstanding under
this credit facility as of March 19, 2002, were $55,000. Both credit facilities
are payable on demand and bear a variable rate of interest computed at the prime
rate.

Management believes the
Companys current credit facilities, together with cash provided by
operations, will be sufficient for its capital and liquidity requirements for
the next twelve months. In the event the Company pursues additional acquisitions
and is unable to use its common stock as payment, the Company would need to
negotiate with a lender to secure additional borrowings to be used to acquire
another companys assets.

## New Accounting
Standards

In July 2001, the Financial
Accounting Standards Board (FASB) issued Statements of Financial Accounting
Standards (Statement) No. 141, Business Combinations. Statement
No. 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the adoption of Statement
No. 141 will not have a significant impact on its financial statements.

In July 2001, the FASB
issued Statement No. 142, Goodwill and Other Intangible Assets,
which is effective for fiscal years beginning after December 15, 2001.
Statement No. 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for
testing impairment of existing goodwill and other intangibles. Upon adoption
of Statement 142, the Company will cease to amortize approximately $820,000 of
goodwill. The Company recorded $110,540 of amortization on this goodwill during
2001 and would have recorded the same amount during 2002. In addition, the
Company will be required to perform an impairment review of its goodwill balance
upon the initial  adoption of Statement No. 142.

The Company expects to
complete this impairment review during the first quarter of 2002. Based on
preliminary calculations, the Company estimates it will record an impairment
charge of  approximately  $820,000  (unaudited).  Any charge resulting from this
initial  impairment  test is  considered  transitional  impairment  and  will be
presented on the Consolidated  Statement of Operations as a cumulative effect of
change in accounting principle, net of applicable income taxes.

The FASB issued
Statement 143, Accounting for Asset Retirement Obligations in
August 2001. Statement 143 requires an enterprise to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of a tangible long-lived asset.
Statement 143 also requires the enterprise to record the contra to the initial
obligation as an increase to the carrying amount of the related long-lived asset
and to depreciate that cost over the remaining useful life of the asset.
Statement 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company does not believe it will have a
material impact on the operations of the Company.

In October 2001, the FASB
issued Statement 144, Accounting For the Impairment or Disposal of
Long-Lived Assets. Statement 144 has broadened the presentation of
discontinued operations to include more disposal transactions, and has enhanced
managements ability to provide information that helps financial statement
users to assess the effects of a disposal transaction on the ongoing operations
of an entity. Statement 144 is effective for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The
Company does not believe it will have a material impact on the operations of the
Company.

## Critical Accounting Policies

The Company follows certain
significant  accounting  policies  when  preparing  its  consolidated  financial
statements.  A summary of these  policies  is included in Note 1 of the Notes to
the Consolidated  Financial Statements.  Certain policies require the Company to
make significant and subjective estimates and assumptions which are sensitive to
deviations  from actual  results.  In  particular,  the Company makes  estimates
regarding  future  undiscounted  cash flows from the use of  long-lived  assets,
including goodwill, in assessing potential impairment whenever events or changes
in  circumstances  indicate the carrying value of a long-lived  asset may not be
recoverable.  Since there were no events or changes in circumstances to indicate
the carrying value of long-lived assets,  including goodwill, were impaired, the
Company  recorded no  adjustment  to the  carrying  value of these  assets.  The
Company does not expect events or circumstances to significantly change, thereby
affecting the carrying value of long-lived assets with the possible exception of
the implementation of Statement No. 142.

In addition,  the Company
has estimated the net realizable value of accounts  receivable by evaluating the
current  pool of accounts  receivable  in light of past  experience  and current
knowledge of its customer  base. The Company  believes the reserves  recorded in
the  financial  statements  are  adequate for  potential  credit  losses.  It is
possible the accuracy of the estimation process could be materially  impacted as
the composition of this pool of accounts  receivable changes over time or if the
health of the economy or the construction industry deteriorates.

Finally,  the  Company
evaluates  whether  inventory  is stated at the lower of cost or market based on
historical  experience  with  the  carrying  value  and life of  inventory.  The
assumptions  used in this evaluation are based on current market  conditions and
the Company  believes  inventory is stated at the lower of cost or market in the
financial statements.

Since the Companys
working capital and equipment lines of credit are variable rate notes, the
Company is exposed to interest rate risk. Based on the Companys debt at
December 31, 2001 and 2000, an increase of 100 basis points in the United States
prime rate would have negatively impacted the Companys net earnings for
the years then ended by $33,000 and $26,000, respectively.

Except for the historical
information contained herein, the matters set forth in this form 10-K are
forward looking and involve a number of risks and uncertainties. Among the
factors that could cause actual results to differ materially are the following:
the long-term impact of the September 11, 2001, tragic events on the
commercial construction and domestic preparedness markets, the impact of
insurance coverage on mold remediation jobs, adverse weather conditions,
inability to hire and train quality people, changes in interest rates,
unavailability of products and strong competition. In addition, increases in oil
prices or shortages in oil supply could significantly impact the Companys
petroleum based products and its ability to supply those products at a
reasonable price. Furthermore, lack of acceptance of our e-commerce solution or
an impairment of goodwill resulting from the 1999 acquisitions could cause
actual results to differ materially.

The consolidated financial
statements and supplementary data are included under Item 14(a)(l) and (2) of
this Report.

PART III

This Item 10 is
incorporated herein by reference from the Companys definitive Proxy
Statement to be filed with the Securities and Exchange Commission not later than
one hundred twenty (120) days after December 31, 2001.

This Item 11 is
incorporated herein by reference from the Companys definitive Proxy
Statement to be filed with the Securities and Exchange Commission not later than
one hundred twenty (120) days after December 31, 2001.

This Item 12 is
incorporated herein by reference from the Companys definitive Proxy
Statement to be filed with the Securities and Exchange Commission not later than
one hundred twenty (120) days after December 31, 2001.

This Item 13 is
incorporated herein by reference from the Companys definitive Proxy
Statement to be filed with the Securities and Exchange Commission not later than
one hundred twenty (120) days after December 31, 2001.

PART IV

The consolidated financial
statements and financial statement schedule listed on the index to consolidated
financial statements on page F-l are filed as part of this Form l0-K.

(2)(a) Agreement of Merger
(filed as Exhibit (2) to the Registration Statement on Form S-18, filed January
11, 1989).

(2)(b) Asset Purchase
Agreement (filed as Exhibit (2)(b) to the Report on Form 8-K, filed October 19,
1992).

(2)(c)
Asset Purchase Agreement for Keliher Hardware Company (filed as exhibit (2)(c)
to the Report on Form 10-K for the year ended December 31, 1998).

(3)(a)(1)
Certificate of Incorporation (filed as Exhibit (3)(a)(1) to the Registration
Statement on Form S-18, filed January 11, 1989; filed electronically as Exhibit
3(i)(a) to the Form 10-Q for the quarter ended December 31, 1995, filed on
November 9, 1995).

(3)(a)(2)
Certificate of Amendment of Certificate of Incorporation (filed as Exhibit
(3)(a)(2) to the Registration Statement on Form S-18, filed January 11, 1989;
filed electronically as Exhibit 3(i)(b) to the Form 10-Q for the quarter ended
December 31, 1995, filed on November 9, 1995).

(3)(a)(3)
Certificate of Amendment of Certificate of Incorporation (filed as Exhibit
(3)(i)(c) to the Form 10-Q for the quarter ended December 31, 1995, filed
November 9, 1995; filed electronically as Exhibit 3(i)(c) to the Form 10-Q for
the quarter ended December 31, 1995, filed on November 9, 1995).

(3)(b)
Bylaws (filed as Exhibit (3)(b) to the Registration Statement on Form S-18,
filed January 11, 1989; filed electronically as Exhibit 3(ii) to the Form 10-Q
for the quarter ended December 31, 1995, filed on November 9, 1995).

(4)(a)
Specimen Certificate of Common Stock (filed as Exhibit (4)(a) to the
Registration Statement on Form S-18, filed January 8, 1989).

(4)(b)
Specimen of Redeemable Common Stock Purchase Warrant (filed as Exhibit (4)(b) to
the Registration Statement on Form S-18, filed February 9, 1989).

(10)(e)
Demand Credit Facility with Comerica Bank-Texas dated June 15, 1989 (filed as
Exhibit (10)(e) to the Report on Form 10-Q for the Quarter ended June 30, 1989,
filed August 11, 1989).

(10)(e)(i)
Demand Credit Facility with Comerica Bank-Texas dated March 1, 1993 (filed as
Exhibit (10)(e)(i) to the Report on Form 10-K for the year ended December 31,
1992).

(10)(e)(ii)
Demand Credit Facility with Comerica Bank-Texas extension, renewal and increase
dated June 1, 1993 (filed as Exhibit (10)(e)(ii) to the Report on Form 10-K for
the year ended December 31, 1993).

(10)(e)(iii)
Demand Credit Facility with Comerica Bank-Texas extension, renewal and increase
dated September 22, 1994 (filed as Exhibit (10)(e)(iii) to the Report on Form
10-K for the year ended December 31, 1994).

(22)
Information Statement dated September 1, 1995 (filed as Exhibit (22) to the
Report on Form 10-K for the year ended December 31, 1995).

SIGNATURES

Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned; thereunto duly authorized, on the 20th day of March, 2002.

`ABATIX CORP.


By: /s/ Terry W. Shaver
    -------------------
Terry W. Shaver

President, Chief Executive Officer
and Director (Principal Executive Officer)`

Pursuant 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 date indicated.

`Signatures              Title                                           Date
----------              -----                                           ----

/s/ Terry W. Shaver     President, Chief Executive Officer              March 20, 2002
Terry W. Shaver         and Director (Principal Executive Officer)


/s/ Gary L. Cox         Executive Vice President,                       March 20, 2002
Gary L. Cox             Chief Operating Officer and Director


/s/ Daniel M. Birnley   Director                                        March 20, 2002
Daniel M. Birnley


/s/ Donald N. Black     Director                                        March 20, 2002
Donald N. Black


/s/ Eric A. Young       Director                                        March 20, 2002
Eric A. Young


/s/ Frank J. Cinatl     Vice President, Chief Financial Officer         March 20, 2002
Frank J. Cinatl, IV     and Director (Principal Accounting Officer)`

ABATIX CORP. AND SUBSIDIARY

                                              Index to Consolidated Financial Statements

`Page
                                                                                        ----
Independent Auditors' Report                                                            F-2

Financial Statements:
  Consolidated Balance Sheets as of December 31, 2001 and 2000                          F-3

  Consolidated Statements of Operations for the years ended
    December 31, 2001, 2000 and 1999                                                    F-4

  Consolidated Statements of Stockholders' Equity for the years
    ended December 31, 2001, 2000 and 1999                                              F-5

  Consolidated Statements of Cash Flows for the years ended
    December 31, 2001, 2000 and 1999                                                    F-6

  Notes to Consolidated Financial Statements                                            F-7


Financial Statement Schedule:
  II - Valuation and Qualifying Accounts for the years ended
        December 31, 2001, 2000 and 1999                                                S-1`

All other schedules have
been omitted as the required information is inapplicable or the information
required is presented in the consolidated financial statements or the notes
thereto.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Abatix Corp.:

We have audited the
consolidated financial statements of Abatix Corp. and subsidiary as listed in
the accompanying index. In connection with our audits of the consolidated
financial statements we also have audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule based on our audits.

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

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Abatix Corp. and subsidiary as of
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG LLP

Dallas, Texas
March 1, 2002

ABATIX CORP. AND SUBSIDIARY

                                                      Consolidated Balance Sheets
                                                      December 31, 2001 and 2000

`Assets                                              2001                2000
                                  ------
                                                                                 ----------------     --------------
Current assets:
   Cash                                                                       $           13,843   $          5,678
   Trade accounts receivable, net of allowance for doubtful accounts of
     $447,037 in 2001 and $559,963 in 2000 (note 4)                                    7,452,983          6,371,419
   Inventories (note 4)                                                                6,170,810          5,124,727
   Prepaid expenses and other assets                                                     716,974            296,254
   Deferred income taxes (note 5)                                                        174,738            277,170
                                                                                 ----------------     --------------
       Total current assets                                                           14,529,348         12,075,248

Receivables from officers and employees                                                    7,676             14,933
Property and equipment, net (notes 3 and 4)                                              903,675            716,993
Deferred income taxes (note 5)                                                           115,781            197,180
Goodwill, net of accumulated amortization of $406,795 in 2001
      and $249,275 in 2000                                                               819,841            977,361
Other assets                                                                              64,850             60,722
                                                                                 ----------------     --------------
                                                                              $       16,441,171   $     14,042,437
                                                                                 ================     ==============

                   Liabilities and Stockholders' Equity
                   ------------------------------------
Current liabilities:
   Notes payable to bank (note 4)                                             $        5,358,513   $      4,334,852
   Accounts payable                                                                    2,163,379          2,418,470
   Accrued compensation                                                                  324,169            158,668
   Other accrued expenses                                                                757,431            499,119
                                                                                 ----------------     --------------
         Total current liabilities                                                     8,603,492          7,411,109
                                                                                 ----------------     --------------

Stockholders' equity (note 6):
   Preferred stock - $1 par value, 500,000 shares authorized; none issued                      -                  -
   Common stock - $.001 par value, 5,000,000 shares authorized; issued
     2,437,314 shares in 2001 and 2000                                                     2,437              2,437
   Additional paid-in capital                                                          2,574,560          2,574,560
   Retained earnings                                                                   7,518,024          6,311,673
   Treasury stock at cost, 726,166 common shares in 2001 and 2000
                                                                                      (2,257,342)        (2,257,342)
                                                                                 ----------------     --------------
       Total stockholders' equity                                                      7,837,679          6,631,328

Commitments and contingencies  (note 10)
                                                                                 ----------------     --------------
                                                                              $       16,441,171   $     14,042,437
                                                                                 ================     ==============`

ABATIX CORP. AND SUBSIDIARY

                                                 Consolidated Statements of Operations
                                             Years ended December 31, 2001, 2000 and 1999

`2001                  2000                 1999
                                                             ----------------      ----------------     ----------------
Net sales                                                 $     54,726,290      $     47,986,591     $     44,576,180
Cost of sales                                                   39,342,062            35,004,764           32,358,985
                                                             ----------------      ----------------     ----------------
       Gross profit                                             15,384,228            12,981,827           12,217,195

Selling, general and administrative expenses                   (12,990,978)          (11,394,760)         (11,083,429)
                                                             ----------------      ----------------     ----------------
       Operating profit                                          2,393,250             1,587,067            1,133,766

Other income (expense):
   Interest expense                                               (380,139)             (561,826)            (386,856)
   Other, net                                                      (27,349)                2,372               13,009
                                                             ----------------      ----------------     ----------------
       Earnings before income taxes                              1,985,762             1,027,613              759,919

Income tax expense (note 5)                                       (779,411)             (429,699)            (298,461)
                                                             ----------------      ----------------     ----------------
       Net earnings                                       $      1,206,351      $        597,914     $        461,458
                                                             ================      ================     ================
Basic and diluted earnings per common share               $            .70      $            .35     $            .26
                                                             ================      ================     ================
Basic and diluted weighted average shares outstanding            1,711,148             1,711,148            1,779,029
                                                             ================      ================     ================`

ABATIX CORP. AND SUBSIDIARY

                                            Consolidated Statements of Stockholders' Equity
                                             Years ended December 31, 2001, 2000 and 1999

`Common Stock          Additional                      Treasury Stock
                                    -----------------------     Paid-in       Retained    --------------------------      Total
                                     Shares        Amount       Capital       Earnings     Shares        Amount          Equity
                                    ----------    ---------    -----------    ----------  ----------  --------------   ------------

Balance at December 31, 1998        2,413,814   $    2,414   $  2,498,508   $ 5,252,301     517,700 $   (1,566,067)  $   6,187,156

    Stock issued for the Purchase
    of Keliher Hardware (note 2)       23,500           23         76,052             -           -              -          76,075

    Purchase of treasury stock              -            -              -             -     185,700       (611,594)       (611,594)

    Stock received to repay debt
    from officer                            -            -              -             -      22,766        (79,681)        (79,681)

Net earnings                            -            -              -       461,458           -              -         461,458
                                    ----------    ---------    -----------    ----------  ----------  --------------   ------------
Balance at December 31, 1999        2,437,314        2,437      2,574,560     5,713,759     726,166     (2,257,342)      6,033,414

    Net earnings                            -            -              -       597,914           -              -         597,914
                                    ----------    ---------    -----------    ----------  ----------  --------------   ------------
Balance at December 31, 2000        2,437,314        2,437      2,574,560     6,311,673     726,166     (2,257,342)      6,631,328

    Net earnings                            -            -              -     1,206,351           -              -       1,206,351
                                    ----------    ---------    -----------    ----------  ----------  --------------   ------------
Balance at December 31, 2001        2,437,314   $    2,437   $  2,574,560   $ 7,518,024     726,166 $   (2,257,342)  $   7,837,679
                                    ==========    =========    ===========    ==========  ==========  ==============   ============`

ABATIX CORP. AND SUBSIDIARY

                                                 Consolidated Statements of Cash Flows
                                             Years ended December 31, 2001, 2000 and 1999

`2001                 2000                 1999
                                                                -----------------    -----------------    -----------------
Cash flows from operating activities:
   Net earnings                                               $       1,206,351  $           597,914  $           461,458
   Adjustments to reconcile net earnings to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                      590,731              521,888              469,032
     Deferred income taxes                                              183,831              (93,929)            (116,798)
     Provision for losses on receivables                                 79,536               85,247              125,370
     Provision for obsolescence of inventory                            168,878               95,823               89,823
     Gain on disposal of assets                                         (19,158)              (5,974)             (19,609)
     Changes in operating assets and liabilities, net of
     business acquisitions:
       Receivables                                                   (1,161,100)             571,605             (413,178)
       Inventories                                                   (1,214,961)             172,805             (474,104)
       Refundable income taxes                                               -                87,986              (87,986)
       Prepaid expenses and other assets                               (420,720)              72,329               64,968
       Other assets, primarily deposits                                  (4,128)               6,251              (30,515)
       Accounts payable                                                (255,091)            (186,117)             556,542
       Accrued expenses                                                 423,813              (83,299)             (96,221)
                                                                -----------------    -----------------    -----------------
Net cash (used in) provided by operating activities                    (422,018)           1,842,529              528,782
                                                                -----------------    -----------------    -----------------

Cash flows from investing activities:
   Purchase of property and equipment                                  (620,679)            (476,238)            (444,642)
   Proceeds from sale of property and equipment                          19,944               30,646               35,750
   Business acquisitions, net of cash acquired (note 2)                       -                    -           (2,160,574)
   Advances to officers and employees                                   (20,043)             (39,162)             (63,897)
   Collection of advances to officers and employees                      27,300               31,979               60,170
                                                                -----------------    -----------------    -----------------
Net cash used in investing activities                                  (593,478)            (452,775)          (2,573,193)
                                                                -----------------    -----------------    -----------------

Cash flows from financing activities:
   Purchase of treasury stock                                                 -                    -             (611,594)
   Borrowings on notes payable to bank                               17,226,585           14,137,514           19,927,926
   Repayments on notes payable to bank                              (16,202,924)         (15,628,383)         (17,389,125)
                                                                -----------------    -----------------    -----------------
Net cash provided by (used in) financing activities                   1,023,661           (1,490,869)           1,927,207
                                                                -----------------    -----------------    -----------------

Net increase (decrease) in cash                                           8,165             (101,115)            (117,204)
Cash at beginning of year                                                 5,678              106,793              223,997
                                                                -----------------    -----------------    -----------------
       Cash at end of year                                    $          13,843  $             5,678  $           106,793
                                                                =================    =================    =================`

ABATIX CORP AND SUBSIDIARY

                                              Notes to Consolidated Financial Statements

| | Abatix
Corp. (Abatix) and subsidiary (collectively, the
Company) market and distribute personal protection and safety
equipment and durable and nondurable supplies to the environmental industry, the
industrial safety industry and, combined with tools and tool supplies, the
construction industry. At December 31, 2001, the Company operated seven sales
and distribution centers in five states. The Companys wholly-owned
subsidiary, International Enviroguard Systems, Inc. (IESI) imports
disposable protective clothing products sold through the Companys
distribution channels and through other distributors.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
accompanying consolidated financial statements include the accounts of Abatix
and IESI. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year amounts have been reclassified
for consistency in presentation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories
consist of materials and equipment for resale and are stated at the lower of
cost or market. Cost is determined by a method that approximates the first-in,
first-out method.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Property
and equipment are stated at cost. Depreciation is provided by the
straight line method over the estimated useful lives of the assets.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
is recognized when the goods are shipped. Shipping fees billed to customers are
included in net sales. The costs related to this revenue which are included in
selling, general and administrative expense, were $1,026,400, $965,019 and
$826,634 for the years December 31, 2001, 2000 and 1999.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Basic
earnings per share is calculated using the weighted average number of common
shares outstanding during each year, while diluted earnings per share includes
the effects of all dilutive potential common shares. As of December 31, 2001,
2000 and 1999, there were no dilutive securities outstanding. Basic earnings per
share and diluted earnings per share amounts were equal for the years ended
December 31, 2001, 2000, and 1999.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents. The Company held no cash equivalents at December 31, 2001 or
2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company paid interest of $393,602, $565,933 and $362,249 in 2001, 2000, and
1999, respectively, and income taxes of $524,176, $352,562 and $637,957 in 2001,
2000, and 1999, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company accounts for income taxes using the asset and liability method. Under
this method the Company records deferred income taxes for the temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities at
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | enacted
tax rates expected to be in effect when such amounts are realized or settled.
The resulting deferred tax liabilities and assets are adjusted to reflect
changes in tax laws or rates in the period that includes the enactment date.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill
represents the excess of purchase price over the fair value of net assets
acquired. Amortization is provided using the straight-line method over estimated
useful lives of three and ten years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company assesses the recoverability of goodwill by determining whether the
amortization of the asset balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate commensurate with that attainable by
the Company for secured borrowings.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2001, the Financial Accounting Standards Board (FASB) issued Statements of
Financial Accounting Standards (Statement) No. 141, Business
Combinations. Statement No. 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company believes that the adoption of
Statement No. 141 will not have a significant impact on its financial
statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
July 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets, which is effective for fiscal years beginning after
December 15, 2001. Statement No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for testing impairment of existing goodwill and other
intangibles. Upon adoption of Statement 142, the Company will cease to amortize
approximately $820,000 of goodwill. The Company recorded $110,540 of
amortization on this goodwill during 2001 and would have recorded the same
amount during 2002. In addition, the Company will be required to perform an
impairment review of its goodwill balance upon the initial adoption of Statement
No. 142.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company expects to complete this impairment review during the first quarter of
2002. Based on preliminary calculations, the Company estimates it will record an
impairment charge of approximately  $820,000  (unaudited).  Any charge resulting
from this initial impairment test is considered transitional impairment and will
be presented on the Consolidated  Statement of Operations as a cumulative effect
of change in accounting principle,  net of applicable income  taxes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
FASB issued Statement 143, Accounting for Asset Retirement
Obligations in August 2001. Statement 143 requires an enterprise to record
the fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of a tangible
long-lived asset. Statement 143 also requires the enterprise to record the
contra to the initial obligation as an increase to the carrying amount of the
related long-lived asset and to depreciate that cost over the remaining useful
life of the asset. Statement 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company does not believe it
will have a material impact on the operations of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2001, the FASB issued Statement 144, Accounting For the
Impairment or Disposal of Long-Lived Assets. Statement 144 has broadened
the presentation of discontinued operations to include more disposal
transactions, and has enhanced managements ability to provide information
that helps financial statement users to assess the effects of a disposal
transaction on the ongoing operations of an entity. Statement 144 is
effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. The Company does not believe it will
have a material impact on the operations of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
January 1, 1999, the Company consummated an asset purchase agreement with
Keliher Hardware Company, a California corporation, pursuant to which the
Company assumed the operations of Keliher. Keliher, based in Los Angeles,
California, is an industrial supply distributor, primarily for the construction
and industrial markets. The estimated fair value of the assets acquired was
approximately $975,000. The aggregate purchase price was settled with the
assumption of certain liabilities (approximately $900,000), the issuance of
23,500 shares of the Companys $.001 par value common stock at a value of
$3.45 per share and $35,000 in cash. This acquisition has been accounted for
using the purchase method of accounting and, accordingly, results of
Kelihers operations are included in the Companys consolidated
financial statements since the acquisition date. The excess of the purchase
price over the fair value of net assets acquired is being amortized on a
straight-line basis over three years. At December 31, 2001, the Keliher
acquisition goodwill is fully amortized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 6, 1999, the Company closed its Denver sales and distribution center. The
Denver facility had sales of $353,000 for the year ended December 31, 1999.
Expenses related to the closing of this location were not material.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
June 1, 1999, the Company consummated an asset purchase agreement with North
State Supply Co. of Phoenix, an Arizona corporation, pursuant to which the
Company assumed the operations of North State, a construction supply
distributor. The estimated fair value of the assets acquired was approximately
$1,800,000. The aggregate purchase price was settled with the assumption of
certain liabilities (approximately $785,000) and approximately $2,100,000 in
cash. This acquisition has been accounted for using the purchase method of
accounting and, accordingly, the results of North States operations are
included in the Companys consolidated financial statements since the
acquisition date. The excess of the purchase price over the fair value of net
assets acquired is being amortized on a straight-line basis over ten years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Property and equipment consists of the following at December 31, 2001 and 2000:
|-------------------------------------------------------------------------------

`Estimated
                                               Useful Life            2001              2000
                                             ----------------     --------------    --------------

Furniture and equipment                        3 - 8 years     $      2,439,216  $      2,512,994
Transportation equipment                       3 - 5 years              462,807           523,743
Leasehold improvements                         3 - 5 years              164,476           153,966
                                                                  --------------    --------------
                                                                      3,066,499         3,190,703
Less accumulated depreciation and
   amortization                                                       2,162,824         2,473,710
                                                                  --------------    --------------
Net property and equipment                                     $        903,675  $        716,993
                                                                  ==============    ==============`

| | At
December 31, 2001, the Company had two lines of credit with a bank. The working
capital facility allows the Company to borrow up to 80 percent of the book value
of eligible trade receivables plus the lesser of 40 percent of eligible
inventory or $2,000,000, up to a maximum of $8,000,000. Under this formula, the
Company had the ability to borrow $7,689,000 at December 31, 2001, of which
approximately $5,277,000 was used. A capital equipment facility provides for
individual borrowings, aggregating up to $550,000, at 80 percent of the
purchased equipments cost. At December 31, 2001, the Company had borrowed
approximately $81,000 on this facility. Each borrowing under the capital
equipment line is due on the earlier of demand or in terms ranging from
thirty-six to sixty monthly installments of principal and interest. Both credit
facilities are payable on demand and bear a variable rate of interest computed
at the prime rate. As of December 31, 2001 and 2000, the Companys rate of
interest on these agreements was 4.75 percent and 9.5 percent, respectively.
These credit facilities are secured by accounts receivable, inventories and
equipment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income tax expense (benefit) for the years ended December 31, 2001, 2000 and 1999 consists of:
| | ----------------------------------------------------------------------------------------------

`2001               2000               1999
                                                 ---------------    ---------------    ---------------
  Current:
     Federal                                  $     494,613      $      424,224     $      342,903
     State                                          100,967              99,404             72,355
  Deferred:
     Federal                                        156,256             (77,366)           (88,946)
     State                                           27,575             (16,563)           (27,851)
                                                 ---------------    ---------------    ---------------

 Total income tax expense                     $     779,411      $      429,699     $      298,461
                                                 ===============    ===============    ===============`

| | A
reconciliation of expected federal income tax expense (based on the U.S.
corporate income tax rate of 34 percent) to actual income tax expense for the
years ended December 31, 2001, 2000 and 1999 follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001               2000               1999
                                                   ---------------     --------------     --------------

  Expected income tax expense                   $      675,159     $        349,388   $         258,372
  State income taxes, net of related federal
     tax benefit                                        94,214               65,536              29,373
  Nondeductible meals, entertainment expense            15,609               15,402              10,667
  Other                                                 (5,571)                (627)                 49
                                                   ---------------     --------------     --------------
  Actual income tax expense                     $      779,411     $        429,699   $         298,461
                                                   ===============     ==============     ==============`

| | The
tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities at December 31, 2001 and 2000 follow:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001               2000
                                                         ---------------    ---------------
Deferred tax assets:
     Allowance for doubtful accounts                 $       178,815     $       223,985
     Inventory reserve                                       136,993              73,587
     Goodwill, due to differences in amortization
         periods                                              38,970             150,666
     Property and equipment, principally due to
         differences in depreciation                          76,811              46,514
                                                         ---------------    ---------------
         Total gross deferred tax assets                     431,589             494,752

Deferred tax liabilities - prepaid expenses                 (141,070)            (20,402)
                                                         ---------------    ---------------
         Net deferred tax assets                     $       290,519     $       474,350
                                                         ===============    ===============`

| | Management
has determined, based on the Companys history of prior operating earnings
and its expectations for the future, that operating earnings will more likely
than not be sufficient to realize the benefit of the deferred tax assets.
Accordingly, the Company has not provided a valuation allowance for deferred tax
assets in any period presented.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Board of Directors has authorized the acquisition of up to 726,500 shares of the
Companys common stock. As of February 28, 2002, the Company has acquired
726,166 shares and does not intend to acquire any additional shares for the
foreseeable future. Included in these shares is a block of 102,600 shares
purchased in March 1999, a block of 51,000 shares purchased in October 1999, and
22,766 shares received from an officer of the Company in January 1999 as payment
for monies owed to the Company of $79,681. All of these shares are held as
treasury shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has a 401(k) profit sharing plan, under which eligible employees may
request the Company to deduct and contribute a portion of their compensation to
the plan. The Company may also, at its discretion, match a portion of employee
contributions to the plan. Contributions by the Company to the 401(k) plan
aggregated $50,046, $46,346 and $42,366 during 2001, 2000 and 1999,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The reported amounts of financial instruments such as cash, accounts receivable, accounts payable
and accrued expenses approximate fair value because of their short maturity. The
carrying value of notes payable to bank approximates fair value because these
instruments bear interest at current market rates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Identification
of operating segments is based principally upon differences in the types and
distribution channel of products. The Companys reportable segments consist
of Abatix and IESI. The Abatix operating segment includes seven aggregated
branches, principally engaged in distributing environmental, safety and
construction supplies to contractors and industrial manufacturing facilities in
the western half of the United States and the Companys corporate
operations. The IESI operating segment, which consists of the Companys
wholly-owned subsidiary, International Enviroguard Systems, Inc., is engaged in
the wholesale distribution of disposable protective clothing to companies
similar to, and including, Abatix. The IESI operating segment distributes
products throughout the United States.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
accounting policies of the operating segments are the same as those described in
Note 1 of the Notes to Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on earnings before
income taxes and accounting changes, and after an allocation of corporate
expenses. Intersegment sales are at agreed upon pricing and intersegment profits
are eliminated in consolidation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Summarized
financial information concerning the Companys reportable segments is shown
in the following table. There are no other significant noncash items.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

`Abatix                 IESI                Totals
                                                         ----------------     -----------------    ------------------
                         2001
     ----------------------------------------------
     Sales from external customer                           $52,461,190          $2,265,100          $54,726,290
     Intersegment sales                                               -             566,315              566,315
     Interest expense                                           380,139                   -              380,139
     Depreciation and amortization                              586,873               3,858              590,731
     Segment profit                                           1,725,611             281,622            2,007,233
     Segment assets                                          16,175,026             631,150           16,806,176
     Capital expenditures                                       620,679                   -              620,679

                         2000
     ----------------------------------------------
     Sales from external customers                          $44,145,042          $3,841,549          $47,986,591
     Intersegment sales                                               -             579,733              579,733
     Interest income                                                689                   -                  689
     Interest expense                                           561,826                   -              561,826
     Depreciation and amortization                              514,538               7,350              521,888
     Segment profit                                             661,051             362,239            1,023,290
     Segment assets                                          13,705,980             439,444           14,145,424
     Capital expenditures                                       474,700               1,538              476,238

                         1999
     ----------------------------------------------
     Sales from external customers                          $42,146,862          $2,429,318          $44,576,180
     Intersegment sales                                               -             876,734              876,734
     Interest income                                                573                   -                  573
     Interest expense                                           386,856                   -              386,856
     Depreciation and amortization                              461,924               7,108              469,032
     Segment profit                                             478,441             292,862              771,303
     Segment assets                                          15,141,406             712,996           15,854,402
     Capital expenditures                                       439,941               4,701              444,642`

| | Below
is a reconciliation of (i) total segment profit to earnings before income taxes
on the Consolidated Statements of Operations, and (ii) total segment assets to
total assets on the Consolidated Balance Sheets for all periods presented. The
sales from external customers represent the net sales on the Consolidated
Statements of Operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2001                 2000                 1999
                                                -----------------    -----------------    -----------------
    Profit for reportable segments                   $2,007,233         $  1,023,290        $     771,303
    Elimination of intersegment
      profits                                           (21,471)               4,323              (11,384)
                                                -----------------    -----------------    -----------------
    Earnings before income taxes                     $1,985,762         $  1,027,613        $     759,919
                                                =================    =================    =================

    Total assets for reportable
      segments                                      $16,806,176          $14,145,424          $15,854,402
    Elimination of intersegment assets                 (365,005)            (102,987)            (649,594)
                                                -----------------    -----------------    -----------------
    Total assets                                    $16,441,171          $14,042,437          $15,204,808
                                                =================    =================    =================`

| | The
Companys sales, substantially all of which are on an unsecured credit
basis, are to various customers from its distribution centers in Texas,
California, Arizona, Washington and Nevada. The Company evaluates credit risks
on an individual basis before extending credit to its customers and it believes
the allowance for doubtful accounts adequately provides for loss on
uncollectible accounts. During 2001, 2000 and 1999, no single customer accounted
for more than 10 percent of net sales, although sales to environmental
contractors were approximately 49 percent, 37 percent, and 43 percent of
consolidated net sales in 2001, 2000, and 1999, respectively. A reduction in
spending on environmental projects could significantly impact sales.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Although
no vendor accounted for more than 10 percent of purchases, one product class
accounted for approximately 14 percent, 13 percent, and 16 percent of net sales
in 2001, 2000, and 1999, respectively. A major component of these products is
petroleum. Increases in oil prices or shortages in supply could significantly
impact sales and the Companys ability to supply its customers with certain
products at a reasonable price.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company leases warehouse and office facilities under long-term noncancelable
operating leases expiring at various dates through November 2006. The following
is a schedule of future minimum lease payments under these leases as of
December 31, 2001:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`2002                   $        1,001,538
       2003                              867,821
       2004                              822,187
       2005                              313,007
       2006                              109,685
                                  ----------------
                              $        3,114,238
                                  ================`

| | Rental
expense under operating leases for the years ended December 31, 2001, 2000 and
1999 was $1,016,209, $950,199 and $776,435, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has employment agreements with three key employees, all of which expire
in 2002. The agreements provide for minimum aggregate cash compensation in 2002
of $414,500.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Quarter
                             ---------------------------------------------------------------------
                                  First            Second            Third            Fourth            Total
                             ---------------- ----------------- ----------------- ---------------- -----------------
2001
----------------------------
Net sales                        $12,132,882       $14,782,809       $14,569,000      $13,241,599       $54,726,290
Gross profit                       3,387,469         4,019,440         4,103,185        3,874,134        15,384,228
Operating profit                     457,541           719,418           731,638          484,653         2,393,250
Net earnings                         196,073           368,279           382,936          259,063         1,206,351
Basic and diluted
   earnings per
   common share                          .11               .22               .22              .15               .70

2000
----------------------------
Net sales                        $11,361,744       $13,220,965       $12,353,517      $11,050,365       $47,986,591
Gross profit                       3,169,854         3,566,964         3,332,820        2,912,189        12,981,827
Operating profit                     232,444           647,973           517,994          188,656         1,587,067
Net earnings                          52,307           301,903           223,304           20,400           597,914
Basic and diluted
   earnings per
   common share                          .03               .18               .13              .01               .35`

Schedule II

ABATIX CORP. AND SUBSIDIARY

                                                   Valuation and Qualifying Accounts
                                             Years ended December 31, 2001, 2000 and 1999

`Additions
                                                      Balance at         charged to
                                                     beginning of        costs and                                                 Balance at
                                                         year             expenses          Other           Deductions             end of year
                                                     --------------    --------------   -------------    ---------------           ------------
Year ended December 31:
   Allowance for Doubtful Accounts:
       2001                                       $        559,963             79,536               -            192,462    A   $      447,037
                                                     ==============    ===============   =============    ===============          ============

       2000                                       $        616,678             85,247               -            141,962    A   $      559,963
                                                     ==============    ===============   =============    ===============          ============

       1999                                       $        514,696            125,370               -             23,388    A   $      616,678
                                                     ==============    ===============   =============    ===============          ============

   Inventory Reserve:
       2001                                       $        288,409            168,878               -             65,362    C   $      391,925
                                                     ==============    ===============   =============    ===============          ============

       2000                                       $        205,222             95,823               -             12,636    C   $      288,409
                                                     ==============    ===============   =============    ===============          ============

       1999                                       $         69,321             89,823         109,993  B          63,915    C   $      205,222
                                                     ==============    ===============   =============    ===============          ============`