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, 1998    Commission File Number - 1-10184

                           ABATIX ENVIRONMENTAL CORP.
             (Exact name of registrant as specified in its charter)

       Delaware                                                75-1908110      
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                           Identification Number)

8311 Eastpoint Drive, Suite 400, Dallas, Texas                   75227         
(Address of principal executive offices)                       (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. [ ]

1,762,148 shares of common stock,  $.001 par value,  were issued and outstanding
on March 24, 1999.

The  aggregate   market  value  of  the   Registrant's   common  stock  held  by
nonaffiliates  of the  Registrant  as of the close of business on March 24, 1999
(an aggregate of 786,614 shares out of a total of 1,762,148  shares  outstanding
at that time) was  $2,556,496  computed by reference to the closing  price of $3
1/4 on March 24, 1999.

Portions of the  Registrant's  proxy  statement  for its 1999 annual  meeting of
stockholders are incorporated into Part III, herein, by this reference thereto.

<PAGE>

                                     PART I

Item 1. Business

(a)      Development of Business

Abatix  Environmental Corp.  ("Abatix" or the "Company") markets and distributes
personal protection and safety equipment, and durable and nondurable supplies to
the asbestos  and lead  abatement,  industrial  safety and  hazardous  materials
industries.  In addition to these products,  the Company also distributes  tools
and tool supplies to the construction industry.

The Company began operations in May 1983 as an industrial  safety supply company
located in Dallas, Texas, and was originally incorporated in Texas as T&T Supply
Company,  Inc.  ("T&T") in March 1984.  T&T expanded its  operations to become a
supplier  to the  asbestos  abatement  industry  in  January  1986.  Abatix  was
incorporated in Delaware on December 5, 1988 to effect and complete an Agreement
and Plan of Merger  with T&T on December  9, 1988.  Unless the context  provides
otherwise,  all references to the Company  include T&T and the Company's  wholly
owned subsidiary, International Enviroguard Systems, Inc. ("IESI").

The  Company  opened  its  Nederland,  Texas  sales  office  in May 1988 and its
Hayward,  California  distribution  location in December 1988.  During 1989, the
Company expanded its customer base to supply the hazardous materials remediation
industry.

In March  1989,  the  Company  completed  its  initial  public  offering  of its
securities  with the sale of 300,000  units,  each  consisting  of two shares of
common stock and one  redeemable  common stock purchase  warrant,  at a price of
$5.00 per unit.  Net proceeds of  $1,135,251  were  realized  from the offering.
Pursuant to provisions of the initial public  offering,  the Company issued,  on
March 2, 1990, a notice of redemption to the warrantholders  with respect to all
of its  outstanding  redeemable  common  stock  purchase  warrants,  which  were
exercisable  at $3.00 per share.  An aggregate  of 231,983 of such  warrants was
exercised  pursuant to the notice.  In total,  290,983  warrants were exercised,
8,917 were  redeemed  and 100 were not  presented,  resulting in net proceeds of
$805,616.  Proceeds  from the  exercise of the  warrants  enabled the Company to
increase its capital base and expand its operations.

In February  1990,  the Company  expanded  its Hayward  location  and opened its
Houston, Texas office/warehouse location. In August 1991, the Company opened its
Santa Fe Springs,  California  office/warehouse location and, in April 1992, the
Nederland,  Texas  location was converted to a warehouse  location and was later
combined  with  the  Houston,   Texas  location.   In  August  1992,  sales  and
administrative  staff were added to the Santa Fe Springs  facility  to  initiate
distribution services to the construction tools supply industry.

On October 5, 1992, the Company  entered into and  consummated an Asset Purchase
Agreement  with  International   Enviroguard  Systems,  Inc.  ("IES"),  a  Texas
corporation, pursuant to which the Company assumed the operation of this company
and issued  250,000 shares of the Company's  $.001 par value common stock.  IES,
based in Corpus Christi,  Texas,  was a manufacturer of sorbents,  primarily for
the hazardous materials  industry.  The Company transferred the assets purchased
and  liabilities  assumed to IESI,  a Delaware  corporation  wholly owned by the
Company.

                                       2
<PAGE>

In response to  improved  competitive  conditions,  the Company  began  asbestos
abatement  supply  distribution  operations in Phoenix and Denver in January and
February of 1993, respectively,  and Seattle in January 1994. The Company opened
a  distribution  center in Corpus  Christi,  Texas in June 1994 as an attempt to
more fully utilize the IESI facilities.

During 1994, because of increased  purchasing power, the Company,  through 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.   The  Company   continues  to  evaluate  the  direct
importation  of  products  to obtain a  consistent  supply of  products at lower
costs.

In December 1994, because of the significant use of cash, the negative impact on
earnings and the limited  potential  for  progress  towards  profitability,  the
Company  announced  plans to discontinue the sorbent  manufacturing  business of
IESI.  This process was completed  during the second  quarter of 1995;  however,
IESI continues the importation of products.

The Corpus  Christi  location  was closed as of  September  30,  1995  primarily
because  the  projected  costs to  operate  the  facility  exceeded  the  market
potential.  As was done prior to opening the Corpus Christi  location,  Abatix's
Houston facility serves the central and south Texas area.

In December 1995, the Company opened its eighth facility in Las Vegas.  Although
the Las Vegas  operation  handles the entire  product line, its primary focus is
the construction tool industry.

The  Company's  lease  agreement on the  building  that was occupied by both the
operations of IESI and the Corpus Christi branch  included an option to purchase
the  building.   In  March  1996,  the  Company   purchased  this  facility  and
simultaneously  sold the building to a third party. This transaction  terminated
the Company's lease  obligation.  Concurrent with the sale, the Company reversed
the  remaining  reserves  resulting in the special  credit and the earnings from
discontinued operations in 1996.

Effective January 1, 1999, the Company  consummated an Asset Purchase  Agreement
with Keliher Hardware Company ("Keliher"), a California corporation, pursuant to
which the Company  assumed the  operations  of  Keliher.  Keliher,  based in Los
Angeles,  California, with a satellite facility in Long Beach, is a $3.5 million
industrial  supply  distributor,  primarily for the  construction and industrial
markets.  The  estimated  fair value of the assets  acquired  was  approximately
$1,000,000.  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 $3.375 per share and
the remainder in cash.  This  acquisition  will be accounted  using the purchase
method.

On March 22, 1999, the Company decided to close its Denver facility.  The Denver
facility had sales of  approximately  $1,449,000,  $1,076,000 and $1,544,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. The Company does
not expect any significant charges related to the shutdown.

                                       3
<PAGE>

The  Company  intends to expand and  diversify  the  revenue  base  through  the
expansion of product lines, hiring additional  personnel,  and acquisitions.  In
addition,  the  Company  is  developing  an  e-commerce  site to  help  solidify
relationships with the existing base of customers and expand our presence beyond
its local market 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

Asbestos Abatement Industry Background

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.  It is estimated that in the United States,  approximately 20 percent
of  all   buildings,   excluding   residences  and  schools,   contain   friable
asbestos-containing   materials  that  are  brittle,  readily  crumble  and  are
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 has increased as the
results of continuing  medical  studies have become  widely known.  Business and
other  publications  and  studies  have  listed  asbestos  abatement  as  one of
America's critical problems,  and legislation  previously introduced to the U.S.
Congress  refers to asbestos as "one of the most dangerous  substances  known to
science." A study  performed  in the 1980's,  predicted  that as many as 225,000
Americans will die of asbestos  related  ailments  before the year 2000 and that
there are  currently  65,000  known cases of  asbestosis.  Litigation  involving
claimants exposed to asbestos has forced several firms to seek the protection of
the bankruptcy  courts, and the volume of pending claims has inundated state and
Federal courts  throughout the country,  thus  prompting  many  commentators  to
propose legislative solutions.

The United States Environmental Protection Agency ("EPA") estimated, in a survey
conducted  in 1984,  that  asbestos  is present  in 30  percent of the  nation's
110,000  schools and in 20 percent of the  nation's 3.6 million  government  and
commercial buildings.  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.

Prompted by such concerns,  Congress,  in 1984, authorized the EPA to spend $800
million for asbestos  abatement  in schools  under the  Asbestos  School  Hazard
Abatement Act. In October 1986,  Congress passed the Asbestos  Hazard  Emergency
Response Act ("AHERA") 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.

                                       4
<PAGE>

Notwithstanding  such  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.  However,  as the U.S.  economy  improves  and
commercial  real  estate  demand  increases,  the Company  believes  the overall
industry will also improve on a limited basis.

Lead Abatement Industry Background 

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  to be 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.
Although  the  Company  does  not  anticipate  a  significant  increase  of lead
abatement projects,  these rules and their opportunities  encourage  management.
Such rules could  create a  long-term  positive  impact on the  Company  through
expenditures  for equipment  and supplies to ensure the safe and proper  removal
and disposal of lead paint.

Safety and Hazardous Materials Industries Background 

The EPA and the Occupational Safety and Health Administration ("OSHA"), together
over  time,  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 expenditures for supplies
and equipment for handling, remediation and disposal of hazardous substances and
the creation of safe living and working conditions.

Construction Tools Supply Industry Background

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.

                                       5
<PAGE>

Currently,  the Company  supplies  the  construction  tools  industry in its Las
Vegas, Los Angeles, and, to a lesser degree,  Phoenix facilities.  This industry
is directly tied to the local economies and more  specifically,  the real estate
conditions within those markets. The real estate market in the Las Vegas area is
strong with vacancy rates for  commercial  properties  low and rental rates high
and construction of hotels and casinos strong.  The condition of the real estate
industry in the Los Angeles and Phoenix areas remains stable.

Geographic Distribution of Business

With the acquisition of Keliher,  the Company  distributes  over 30,000 personal
protection,  safety,  hazardous waste remediation and construction tool products
to approximately 6,000 customers primarily located in the Southwest, Midwest and
Pacific Coast. Approximately 48 percent of its products are sold to asbestos and
lead  abatement  contractors,  23 percent to the industrial  safety  market,  12
percent to construction  related firms and 17 percent to other firms,  including
hazardous material  contractors and other  distributors.  The Company believes a
majority of its sales for the  foreseeable  future  will  continue to be made to
asbestos and lead abatement  contractors,  project  organizers and managers.  At
present, the Company estimates its share of the asbestos abatement supply market
to be  approximately  15 to 20 percent in the  geographic  markets served by the
Company.  The  Company  considers  its  relationship  with its  customers  to be
excellent.

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 abatement  contractors who require
immediate  deliveries because their work is often 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  maintains  sales,  distribution  and warehouse  centers in Santa Fe
Springs, Los Angeles, Long Beach and Hayward, California, in Dallas and Houston,
Texas, in Phoenix, Arizona, in Las Vegas, Nevada, and in Kent, Washington.

Equipment and Supplies

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  85  percent  of the  Company's  sales  for  1998  and 1997 are of
disposable items and commodity  products,  which are sold to customers at 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.

                                       6
<PAGE>

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 general  managers at each of its operating
facilities.  These sales  representatives  are  compensated  by a combination of
salary and/or commission, which is based upon, negotiated sales standards.

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 averaged  approximately  3 percent
annually  over the past  several  years,  with the 1998  inflation  rate below 2
percent. The 1999 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 inflation 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 no
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  asbestos  abatement  services  and supply  business has been
seasonal as a result of the substantial number of abatement  contracts performed
in  educational  facilities  during the summer  months or during other  vacation
periods.  The Company  believes the  non-educational  or private  sector,  which
includes the  industrial,  commercial  and  residential  markets,  is an area of
potential  growth,  and that seasonality is not a major  characteristic of these
markets.  In addition to the private  sector  asbestos  business,  the Company's
expansion  of  the  hazardous  material   remediation,   industrial  safety  and
construction  tools  supply  markets  have  mitigated  any  seasonal  impacts of
government asbestos projects.

                                       7
<PAGE>

Government Regulation

As a  supplier  of  products  manufactured  by others to the  asbestos  and lead
abatement,  industrial safety and hazardous  materials  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,  and developments in legislation and
regulations  affecting  manufacturers  and purchasers of the Company's  products
could have a substantial effect on the Company.

Competition

The asbestos and lead  abatement,  industrial  safety,  hazardous  materials 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 who 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.  Additional  companies  could  enter the
asbestos  and  lead  abatement,   industrial  safety,  hazardous  materials  and
construction tools supply industries and may have greater  financial,  marketing
and technical resources than the Company

Employees

As of February 28, 1999, the Company employed a total of 103 full time employees
including 4 executive  officers,  8 managers,  53  administrative  and marketing
personnel  and  38  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
3,200 square feet of leased general office space in conjunction  with the Dallas
branch.  This lease expires in July 1999.  The Company is currently  negotiating
for  additional  lease space in the Dallas area.  As of December  31, 1998,  the
eight  distribution  facilities  lease a total of 105,145 square feet of general
office and warehouse  space.  These  facilities  range in size from 6,875 square
feet to 24,000 with leases  expiring  between  January  1999 and March 2002.  In
March 1999,  the Company  decided to close its Denver  facility,  which lease of
6,875 square feet expired in February 1999.

Item 3. Legal Proceedings

The Company was named as a defendant in a product liability lawsuit filed in the
Superior  Court of the  State of  California  for the  County  of Los  Angeles -
Central District  (Placido Alvarez vs. Abatix  Environmental  Corp., et al, Case
No.   BC133537).   The  Company   was   receiving   indemnification   under  the
manufacturer's   insurance  and  legal   representation   at  the  cost  of  the
manufacturer.  The Company  received  notification  this  lawsuit was  dismissed
without prejudice in August 1998.

                                       8
<PAGE>

In December 1998, the Company was named as a defendant in a lawsuit filed in the
District Court of Harris County,  Texas  (Asbestos  Handlers,  Inc.  ("AHI") vs.
Abatix  Environmental  Corp.,  et al). The lawsuit alleges the Company and other
defendants together  participated in the conversion and unauthorized sale of AHI
inventory  totaling  $27,756.  The  plaintiff  seeks actual  damages,  exemplary
damages,  interest and attorney's  fees. The Company  purchased the inventory in
good  faith  and  believed  that the  manager  of  AHI's  Houston  facility  was
representing  AHI's interests.  Management  intends to vigorously defend against
this claim.

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

None

                                       9
<PAGE>

                                     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  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
                                              Price
                                   ----------------------------
          1997                        High             Low
-------------------------          -----------      -----------
     First Quarter              $    3 3/8       $    2 1/2
     Second Quarter                 3 15/16           2 3/16
     Third Quarter                   3 3/8              2
     Fourth Quarter                  3 7/16           2 1/2

          1998
-------------------------
     First Quarter              $    3 7/8       $    2 5/8
     Second Quarter                  4 1/2            3 3/8
     Third Quarter                   4 1/4            2 3/4
     Fourth Quarter                 3 15/16           2 3/4

On March 24, 1999, the closing bid price for the common stock was $3 1/4.

(b) As of March 24,  1999,  the  approximate  number of holders of record of the
Company's common stock was 700.

(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.

(d) In November 1998, the Board of Directors  authorized an additional  purchase
of up to 250,000  shares of the  Company's  common stock.  With this  additional
authorization, management has the authority to purchase up to 726,500 shares. As
of March 24, 1999, the Company has purchased  652,400 shares,  including a block
of 102,600  shares in March  1999.  In  addition to the  purchased  shares,  the
Company  received  22,766  shares  from an officer of the Company as payment for
monies owed to the Company of  approximately  $80,000 in January 1999.  Both the
block purchase and the shares  received from the officer of the Company are held
as treasury shares.

                                       10
<PAGE>

Item 6. Selected Financial Data

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).
<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                             ----------------------------------------------------------------------
                                                1998           1997           1996           1995           1994
                                             ----------     ----------     ----------     ----------     ----------
<S>                                          <C>            <C>            <C>            <C>            <C>
Selected Operating Results:
   Net sales                                 $  37,328      $  34,955      $  33,067      $  27,632      $  25,982
   Gross profit                              $  10,481      $   9,651      $   9,202      $   7,977      $   7,164

   Earnings from continuing operations       $   1,167      $     841      $     734      $     813      $     580

   Earnings (loss) from discontinued                                        
     operations, net of income taxes                 -              -             22              -           (363)
                                             ----------     ----------     ----------     ----------     ----------
   Net earnings                              $   1,167      $     841      $     756      $     813      $     217
                                             ==========     ==========     ==========     ==========     ==========

Basic earnings per common share:
   Earnings from continuing operations       $     .60      $     .43      $     .35      $     .37      $     .25
   Earnings (loss) from discontinued
     operations                                      -              -            .01              -           (.16)
                                             ----------     ----------     ----------     ----------     ----------
   Net earnings                              $     .60      $     .43      $     .36      $     .37      $     .09
                                             ==========     ==========     ==========     ==========     ==========

Diluted earnings per common share:
   Earnings from continuing operations       $     .60      $     .43      $     .35      $     .36      $     .25
   Earnings (loss) from discontinued
     operations                                      -              -            .01              -           (.16)
                                             ----------     ----------     ----------     ----------     ----------
   Net earnings                              $     .60      $     .43      $     .36      $     .36      $     .09
                                             ==========     ==========     ==========     ==========     ==========

Weighted average shares outstanding:
     Basic                                       1,934          1,934          2,076          2,207          2,311
                                             ==========     ==========     ==========     ==========     ==========
     Diluted                                     1,934          1,934          2,111          2,238          2,330
                                             ==========     ==========     ==========     ==========     ==========
</TABLE>
<TABLE>
<CAPTION>

                                                                       As of December 31,
                                             ----------------------------------------------------------------------
                                                1998           1997           1996           1995           1994
                                             ----------     ----------     ----------     ----------     ----------
<S>                                          <C>            <C>            <C>            <C>            <C>
Selected Balance Sheet Data:
   Current assets                            $   9,918      $   9,003      $   9,722      $   8,230      $   7,426
   Current liabilities                           4,408          4,676          6,219          4,659          4,208
   Total assets                                 10,596          9,854         10,678          8,977          8,184
   Total liabilities                             4,408          4,676          6,219          4,659          4,283
   Retained earnings                             5,252          4,085          3,244          2,488          1,674
   Stockholders' equity                          6,187          5,178          4,459          4,318          3,901
</TABLE>
                                       11
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Consolidated  net sales for the year ended December 31, 1998 increased 7 percent
to $37,328,000 from $34,955,000 in 1997. The Abatix operating  segment net sales
grew 4 percent to $34,928,000  in 1998 and the IESI operating  segment net sales
increased 70 percent to $2,400,000  in 1998.  The increase in  consolidated  net
sales  resulted from efforts to further  expand and diversify the customer base.
The  increase  is  also  a  result  of the  stable  economic  conditions  in the
geographic  regions  serviced  by  the  Company's  facilities.   These  economic
conditions,  if  maintained,  should provide the ability for the Company to grow
its revenues in 1999. In addition,  the  acquisition  of Keliher,  an industrial
supply  distributor,  in January 1999  provides a larger  customer  base and the
ability to cross sell  products  to both  Keliher  and Abatix  customers.  These
efforts also provide the groundwork for broadening the Company's  revenues among
its different product markets,  thereby  decreasing its dependence on any one of
its markets.

On March 22, 1999, the Company decided to close its Denver facility.  The Denver
facility had sales of  approximately  $1,449,000  and  $1,076,000  for the years
ended  December  31, 1998 and 1997,  respectively.  The  Company  will serve the
Denver market primarily from its Phoenix and Dallas locations.

Industry-wide  sales of  asbestos  abatement  products  are  expected  to remain
relatively flat for the  foreseeable  future.  The Company  believes the current
U.S.  economic  expansion will positively  impact its operations.  However,  the
asbestos   abatement  industry  will  likely  diminish  over  time  as  asbestos
containing  materials,  last used in construction during 1977-1980,  are removed
from  schools,  office  buildings,  homes and  factories.  A 1992 estimate by an
industry  analyst  predicted that as much as $80 billion may be spent nationwide
over a 20 year period for asbestos  removal,  of which the Company  estimates $8
billion  relates to abatement  supplies.  Approximately  $2 billion in abatement
supplies is estimated  to be spent during this 20 year period in the  geographic
areas served by the Company's eight distribution centers. At this potential rate
of  expenditure,  and at a presently  estimated 15 to 20 percent market share of
the  asbestos  abatement  markets  served  by  the  Company,   the  current  and
intermediate  term effects of the diminishing  market are not expected to have a
material adverse impact on the Company.

Sales to the hazardous materials remediation, industrial safety and construction
tools supply markets are increasing both in absolute amounts and as a percentage
of  revenues  to the  Company.  The  acquisition  of  Keliher,  other  potential
acquisitions, additional salespeople and internal growth in these markets should
decrease the dependency of the Company on any one product or geographic market.

Gross  profit in 1998 of  $10,481,000  increased 9 percent  from gross profit in
1997 of $9,651,000 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  28 percent for 1998 and 1997.  Overall  margins  are  expected to
remain at their current levels in 1999.  However,  competitive  pressures  could
negatively  impact any and all  efforts by the  Company to  maintain  or improve
product margins.

                                       12
<PAGE>

Selling,  general and administrative expenses for 1998 of $8,373,000 increased 5
percent  over  1997  expenses  of  $7,953,000.  The  increase  was  attributable
primarily to higher  employment  costs as a result of  additional  marketing and
support personnel.  Selling, general and administrative expenses were 22 percent
of sales for 1998 and 23 percent of sales for 1997.  These expenses are expected
to remain in their  current  range for 1999.  The  Company  does not  expect any
significant charges related to the shutdown of its Denver facility.

Other  expense,  net, of $220,000 in 1998 decreased 40 percent from 1997 expense
of $365,000.  This decrease is primarily due to lower interest expense resulting
from lower borrowings on the Company's  working capital line of credit and lower
interest  rates.  The  lower  borrowings  are due to  improved  receivables  and
inventory management.  Since the Company's lines of credit are tied to the prime
rate,  any  increases in the prime rate would  negatively  affect the  Company's
earnings.

Net earnings in 1998 of $1,167,000 or $.60 per share increased $326,000 from net
earnings of $841,000 or $.43 per share in 1997.  The 39 percent  increase in net
earnings is primarily due to increased sales volume and lower interest  expense,
partially offset by higher general and administrative expenses.

The Company's credit policies remain stringent,  and accounts receivable written
off are below industry experience. Monthly average days of sales in net accounts
receivable  decreased  slightly  from 1997 to 1998.  The  Company  believes  the
reserve for doubtful accounts is adequate.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Results of Continuing Operations

Consolidated  net sales from  continuing  operations for the year ended December
31, 1997 increased 6 percent to $34,955,000 from $33,067,000 in 1996. The Abatix
operating  segment net sales grew 4 percent to  $33,544,000 in 1997 and the IESI
operating  segment net sales  increased 66 percent to  $1,412,000  in 1997.  The
Denver  facility had sales of  approximately  $1,076,000  and $1,544,000 for the
years ended December 31, 1997 and 1996, respectively.

Gross profit in 1997 of $9,651,000 increased 5 percent from gross profit in 1996
of $9,202,000 due to increased volume. As expected, margins varied somewhat 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 28 percent for
1997 and 1996.

Selling,  general and administrative expenses for 1997 of $7,953,000 increased 3
percent  over  1996  expenses  of  $7,708,000.  The  increase  was  attributable
primarily to higher  employment  costs as a result of  additional  marketing and
support personnel.  Selling, general and administrative expenses were 23 percent
of sales for both 1997 and 1996.

                                       13
<PAGE>

In March 1996,  the Company's  lease  obligation  for its closed Corpus  Christi
branch was terminated. This lease termination enabled the Company to reverse all
remaining reserves, resulting in the 1996 special credit.

Other expense, net, of $365,000 in 1997 increased 2 percent over 1996 expense of
$356,000. This increase is primarily due to increased interest expense resulting
from higher  borrowings on the Company's  working capital line of credit to fund
the  growth in  inventory  and the growth in  receivables  during the first nine
months of the year.

Results of Discontinued Operations

The Company  realized  earnings  of $22,000 or $.01 per share from  discontinued
operations in 1996, resulting from the termination of the lease obligation.

Net Results

Net  earnings in 1997 of $841,000 or $.43 per share  increased  $85,000 from net
earnings of $756,000 or $.36 per share in 1996.  The 11 percent  increase in net
earnings  is  primarily  due to  increased  volume,  partially  offset by higher
general and administrative expenses. In addition, the 1996 net earnings included
a special credit and income from discontinued operations.

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 significant increases in
sales  volume  and/or  the  addition  of new  locations.  Net cash  provided  by
operations  during  1998 of  $420,000  resulted  principally  from net  earnings
adjusted for non-cash charges and the decrease in inventories, all of which were
partially  offset by the  increase  in  accounts  receivable.  The  increase  in
receivables as of December 31, 1998 is due to unusually strong sales in December
1998 as compared to December 1997.

Cash  requirements for non-operating  activities during 1998 resulted  primarily
from the working capital line of credit payments,  the purchases of property and
equipment amounting to $192,000 and the repurchase of the Company's common stock
totaling  $158,000.  The  working  capital  line  of  credit  payments,  net  of
borrowings,  occurred  as  a  result  of  reductions  in  inventory  and  better
management  of  accounts  receivable.  The  equipment  purchases  in  1998  were
primarily delivery vehicles and computer equipment.  The Company repurchased its
common stock because of the Board of Directors'  belief that it was  undervalued
in the marketplace. The repurchase of common stock and purchases of property and
equipment were funded by borrowings on the Company's lines of credit.

Cash  flow  from  operations  for the  entire  year of  1999 is  expected  to be
break-even,  although at any given point,  it may be negative.  Break-even  cash
flow from  operations is expected  because the rate of revenue growth in 1999 is
projected  to be  higher  than  1998,  but  not at a  level  that  will  require
significant net cash flows from sources other than operations.

                                       14
<PAGE>

Capital  requirements  for 1999 are expected to be higher than in 1998 primarily
due to the Company's  plans to develop an e-commerce site on the internet and to
invest in other technology  solutions.  In addition,  the Company's  acquisition
strategy  for  increasing  the  standard of service to the  customer  base could
require higher capital expenditures.

The Company has continued to purchase  common stock in open market and privately
negotiated  transactions.  The Company has  purchased  134,700  shares of common
stock for  approximately  $443,000  from January 1, 1999 through March 24, 1999,
including  a  102,600  share  block  purchase  in  March  1999.  Management  has
authorization  from the Board of  Directors  to  purchase an  additional  51,000
shares.  The Company will use cash flow from  operations  and  borrowings on the
working capital line of credit to fund the purchases of stock.

The  Company  maintains  a  $5,500,000  working  capital  line  of  credit  at a
commercial  lending  institution  that  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  $1,500,000.  As of March 24, 1999,  there are
advances  outstanding  under this credit  facility of  $3,337,000.  Based on the
borrowing  formula,  the  Company  had the  capacity  to  borrow  an  additional
$2,163,000 as of March 24, 1999. 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 24,
1999 were  $360,000.  Both  credit  facilities  are payable on demand and bear a
variable rate of interest computed at the prime rate.

Management  believes,  that based on its equity position,  the Company's current
credit  facilities can be expanded during the next twelve months,  if necessary,
and that these  facilities,  together with cash provided by operations,  will be
sufficient  for its  capital  and  liquidity  requirements  for the next  twelve
months.

Year 2000 Compliance

The  Company   relies  on   information   technology,   such  as  computer   and
telecommunications  hardware  and  software  systems,  in  every  aspect  of its
business. In addition,  the Company relies on non-information system technology,
such as facsimile machines,  photocopiers,  and similar equipment that typically
includes embedded technology such as  microcontrollers,  to function effectively
on a day to day  basis.  A plan has been  developed  to assess the impact of the
Year 2000  issues on the  Company's  operations  and to  replace  or repair  all
critical information technology and non-information  technology systems that are
not Year 2000 compliant.

The  Company  is  currently  assessing  the  impact of Year  2000  issues on its
information  technology  systems,  and has begun remediation  efforts in certain
areas,  principally  in  the  application  software  used  for  the  day  to day
operations of the Company.  This software package also integrates the accounting
system.  In addition,  the Company has begun testing and remediation  efforts of
the  personal  computers  and  software  used  by the  employees  for day to day
operational   tasks.  The  anticipated   completion  date  for  the  assessment,
implementation and testing phases of the information  technology systems is July
31,  1999.  The Company  will not begin its  assessment  of the  non-information
technology systems until the second quarter of 1999, and anticipates  completion
by September 30, 1999. In addition,  the Company has begun requesting that third
parties, with which the Company has material  relationships,  confirm in writing
their plans for Year 2000  compliance.  The Company  anticipates  response  from
these  business  partners  no  later  than  May  31,  1999.  After  testing  the
information  technology  systems  and  non-information  technology  systems  and
evaluation of the third party responses, the Company will prepare, if necessary,
a contingency plan to minimize Year 2000 issues.

                                       15
<PAGE>

To date,  the Company has incurred  less than  $10,000 in costs  related to this
project.  The total cost to complete this project is not known at this time, but
is not expected to exceed $200,000.  It is anticipated the cost to complete this
project will be funded  through cash flow from  operations  or borrowings on the
lines of  credit.  The  inability  of the  Company or the  aforementioned  third
parties to successfully complete their Year 2000 projects could prevent delivery
of products to customers,  receipt of products from suppliers, payment for these
products and collection of monies owed to the Company.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Since the Company's  working  capital and equipment lines of credit are variable
rate notes,  the Company is exposed to  interest  rate risk.  An increase of 100
basis  points in the United  States  prime  rate  would have a $18,000  negative
impact on the net earnings of the Company.


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: federal funding of environmental related projects,
general  economic and  commercial  real estate  conditions in the local markets,
changes in interest  rates,  inability to pass on price  increases to customers,
unavailability  of products,  strong  competition and loss of key personnel.  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.  Among the  factors  that  could  impact  the
Company's  ability to continue a successful  acquisition  strategy are:  general
economic conditions, adequate capital resources, and retention of key personnel.
Unanticipated  Year  2000  problems  in  the  Company's  information  technology
systems, the inability of third parties to be compliant by December 31, 1999, or
unavailable  financial  or  non-financial  resources  to  remedy  the Year  2000
problems could also cause actual results to differ materially.

New Accounting Standards

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" ("Statement 133"). Statement 133 is effective for fiscal
quarters  of all fiscal  years  beginning  after June 15,  1999 and  establishes
accounting and reporting standards for derivative instruments. Management of the
Company does not expect the adoption of Statement 133 to have a material  impact
on the Company's financial condition or results of operations.

                                       16
<PAGE>

Item 8.  Consolidated Financial Statements and Supplementary Data

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

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

None

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

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, 1998.

Item 11.  Executive Compensation

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, 1998.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

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, 1998.

Item 13.  Certain Relationships and Related Transactions

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, 1998.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  1 and 2. Consolidated Financial Statements and Financial Statement Schedule

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.

                                       17
<PAGE>

(b)  Reports on Form 8-K

None

(c)  Exhibits

(1)(a)         Form of Underwriting Agreement (filed as Exhibit (1)(a) to the
               Registration Statement on Form S-18, filed February 9, 1989).

(1)(b)         Form of Selected Dealer Agreement (filed as Exhibit (1)(b) to 
               the Registration Statement on Form S-18, filed January 11, 1989).

(1)(c)         Warrant Solicitation Agent and Exercise Fee Agreement (filed as 
               Exhibit (l)(c) to the Report on Form 10-K for the year ended 
               December 31, 1989).

(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.*

(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 September 30, 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 September 30, 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
               September 30, 1995, filed November 9, 1995; filed electronically
               as  Exhibit  3(i)(c)  to the  Form  10-Q for the  quarter  ended
               September 30, 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 September 
               30, 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).

                                       18
<PAGE>

(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).

(4)(c)         Form of Warrant to be sold to Culverwell & Co., Inc.  (filed as 
               Exhibit (4)(c) to the Registration Statement on Form S-18, filed
               February 9, 1989).

 (4)(d)        Warrant  Agency  Agreement  between  the  Registrant  and  North
               American  Transfer  Company  (filed  as  Exhibit  (4)(d)  to the
               Registration Statement on Form S-18, filed February 9, 1989).

(9)(a)(ii)     Form of  Escrow  Agreement  with  State  Street  Bank and  Trust
               Company  (filed  as  Exhibit   (9)(a)(ii)  to  the  Registration
               Statement on Form S-18, filed January 11, 1989).

(10)(a)        Employment Agreement with Terry W. Shaver (filed as Exhibit 
               (10)(a) to the Registration Statement on Form S-18, filed 
               January 11, 1989).

(10)(a)(i)     Employment  Agreement with Terry W. Shaver effective  January 2,
               1991 (filed as Exhibit (10)(a)(i) to the Report on Form 10-K for
               the year ended December 31, 1990).

(10)(a)(ii)    Employment  Agreement with Terry W. Shaver effective  January 4,
               1993  (filed as Exhibit  (10)(a)(ii)  to the Report on Form 10-K
               for the year ended December 31, 1992).

(10)(a)(iii)   Employment  Agreement with Terry W. Shaver effective  January 1,
               1995 (filed as Exhibit  (10)(a)(iii)  to the Report on Form 10-K
               for the year ended December 31, 1994).

(10)(a)(iv)    Employment  Agreement with Terry W. Shaver effective  January 1,
               1997  (filed as Exhibit  (10)(a)(iv)  to the Report on Form 10-K
               for the year ended December 31, 1996).

(10)(a)(v)     Employment Agreement with Terry W. Shaver effective January 1, 
               1999.*

(10)(b)        Employment  Agreement with Gary L. Cox (filed as Exhibit (10)(b)
               to the Registration Statement on Form S-18, filed January 11, 
               1989).

(10)(b)(i)     Employment Agreement with Gary L. Cox effective January 2, 1991 
               (filed as Exhibit (10)(b)(i) to the Report on Form 10-K for the 
               year ended December 31, 1990).

(10)(b)(ii)    Employment Agreement with Gary L. Cox effective  January 4, 1993
               (filed as Exhibit (10)(b)(ii) to the Report on Form 10-K for the
               year ended December 31, 1992).

                                       19
<PAGE>

(10)(b)(iii)   Employment  Agreement with Gary L. Cox effective January 1, 1995
               (filed as Exhibit (10)(b)(iii) to the Report on Form 10-K for 
               the year ended December 31, 1994).

(10)(b)(iv)    Employment Agreement with Gary L. Cox effective  January 1, 1997
               (filed as Exhibit (10)(b)(iv) to the Report on Form 10-K for the
               year ended December 31, 1996).

(10)(b)(iv)    Employment Agreement with Gary L. Cox effective January 1, 1999.*

(10)(c)        Revolving Credit Agreement with Texas American Bank/Duncanville,
               N.A. (filed as Exhibit (10)(c) to the Registration Statement on 
               Form S-18, filed January 11, 1989).

(10)(d)        Demand Credit Facility with Comerica  Bank-Texas  dated February
               15,  1989  (filed as Exhibit  (10)(d) to the Report on Form 10-Q
               for the Quarter ended March 31, 1989, filed May 15,1989).

(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).

(10)(f)        Employment Agreement with S. Stanley French effective October 1,
               1992 (filed as Exhibit (10)(f) to the Report on Form 8-K, filed 
               October 19, 1992).

(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).

(23)           Consent of Independent Auditors (filed as Exhibit (23) to the 
               Report on Form 10-K for the year ended December 31, 1997).

(27)           Financial Data Schedule for the twelve months ended December 31,
               1998.*

               * Filed herewith as part of the Company's electronic filing.

                                       20
<PAGE>

                                   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 26th day of March,
1999.


                           ABATIX ENVIRONMENTAL 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 26, 1999
Terry W. Shaver       and Director (Principal Executive Officer)


/s/ Gary L. Cox       Executive Vice President,                  March 26, 1999
Gary L. Cox           Chief Operating Officer and Director


/s/ Lamont C. Laue    Director                                   March 26, 1999
Lamont C. Laue


/s/ Donald N. Black   Director                                   March 26, 1999
Donald N. Black


/s/ Frank J. Cinatl   Vice President, Chief Financial Officer    March 26, 1999
Frank J. Cinatl, IV   and Director (Principal Accounting Officer)

                                       21

<PAGE>

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                   Index to Consolidated Financial Statements

                                                                          Page
Independent Auditors' Report                                               F-2

Financial Statements:
  Consolidated Balance Sheets as of December 31, 1998 and 1997             F-3

  Consolidated Statements of Operations for the years ended
    December 31, 1998, 1997 and 1996                                       F-4

  Consolidated Statements of Stockholders' Equity for the years
    ended December 31, 1998, 1997 and 1996                                 F-5

  Consolidated Statements of Cash Flows for the years ended
    December 31, 1998, 1997 and 1996                                       F-6

  Notes to Consolidated Financial Statements                               F-7


Financial Statement Schedule:
  II - Valuation and Qualifying Accounts for the years ended
        December 31, 1998, 1997 and 1996                                   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.

                                      F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Abatix Environmental Corp.:


We have audited the consolidated  financial  statements of Abatix  Environmental
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  financial  statement
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 Environmental
Corp.  and subsidiary as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1998 in  conformity  with  generally  accepted  accounting
principles. 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
February 19, 1999

                                      F-2

<PAGE>
<TABLE>
<CAPTION>

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                           Consolidated Balance Sheets
                           December 31, 1998 and 1997

                                                                                    1998             1997
                                                                                ------------     ------------
<S>                                                                             <C>              <C>
                           Assets
Current assets:
   Cash                                                                         $   223,997      $   304,947
   Trade accounts receivable, net of allowance for doubtful accounts of
     $514,696 in 1998 and $495,092 in 1997 (note 4)                               5,701,314        4,768,279
   Inventories (note 4)                                                           3,424,914        3,538,355
   Prepaid expenses and other assets                                                424,865          249,426
   Deferred income taxes (note 5)                                                   143,299          142,466
                                                                                ------------     ------------
       Total current assets                                                       9,918,389        9,003,473

Receivables from officers and employees                                              79,505           73,729
Property and equipment, net (notes 3 and 4)                                         450,991          632,120
Deferred income taxes (note 5)                                                      120,324          115,531
Other assets                                                                         26,296           29,396
                                                                                ------------     ------------
                                                                                $10,595,505      $ 9,854,249
                                                                                ============     ============

                   Liabilities and Stockholders' Equity Current liabilities
   Notes payable to bank (note 4)                                               $ 2,854,206      $ 3,010,733
   Accounts payable                                                                 958,656        1,230,107
   Accrued compensation                                                             181,071          107,272
   Other accrued expenses                                                           414,416          328,460
                                                                                ------------     ------------
         Total current liabilities                                                4,408,349        4,676,572
                                                                                ------------     ------------

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
     2,413,814 shares                                                                 2,414            2,414
   Additional paid-in capital                                                     2,498,508        2,498,508
   Retained earnings                                                              5,252,301        4,084,892
   Treasury stock at cost, 517,700 common shares in 1998 and 476,250
     common shares in 1997                                                       (1,566,067)      (1,408,137)
                                                                                ------------     ------------
       Total stockholders' equity                                                 6,187,156        5,177,677

Commitments and contingencies (note 10)
                                                                                ------------     ------------
                                                                                $10,595,505      $ 9,854,249
                                                                                ============     ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>
<TABLE>
<CAPTION>

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                      Consolidated Statements of Operations
                  Years ended December 31, 1998, 1997 and 1996

                                                                 1998             1997             1996
                                                             ------------     ------------     ------------
<S>                                                          <C>              <C>              <C>           
Net sales                                                    $37,327,629      $34,955,477      $33,066,831
Cost of sales                                                 26,846,279       25,304,902       23,864,836
                                                             ------------     ------------     ------------
       Gross profit                                           10,481,350        9,650,575        9,201,995

Selling, general and administrative expenses                  (8,373,030)      (7,953,179)      (7,707,546)
Special credit (note 2)                                                -                -           56,711
                                                             ------------     ------------     ------------
       Operating profit                                        2,108,320        1,697,396        1,551,160

Other income (expense):
   Interest income                                                15,824           36,187           19,840
   Interest expense                                             (238,706)        (381,655)        (359,712)
   Other, net                                                      2,400          (19,215)         (15,944)
                                                             ------------     ------------     ------------
       Earnings from continuing operations before
         income taxes                                          1,887,838        1,332,713        1,195,344

Income tax expense (note 5)                                     (720,429)        (491,607)        (460,941)
                                                             ------------     ------------     ------------
       Earnings from continuing operations                     1,167,409          841,106          734,403

Discontinued operations - earnings on discontinuance
     of business, net of tax expense of $8,348 (note 2)                -                -           21,545
                                                             ------------     ------------     ------------
       Net earnings                                          $ 1,167,409      $   841,106      $   755,948
                                                             ============     ============     ============

Basic earnings per common share:
   Earnings from continuing operations                       $       .60      $       .43      $       .35
   Earnings from discontinued operations                               -                -              .01
                                                             ------------     ------------     ------------
       Net earnings                                          $       .60      $       .43      $       .36
                                                             ============     ============     ============

Diluted earnings per common share:
   Earnings from continuing operations                       $       .60      $       .43      $       .35
   Earnings from discontinued operations                               -                -              .01
                                                             ------------     ------------     ------------
       Net earnings                                          $       .60      $       .43      $       .36
                                                             ============     ============     ============

Weighted average shares outstanding (note 1(f)):
     Basic                                                     1,933,769        1,933,896        2,076,241
                                                             ============     ============     ============
     Diluted                                                   1,933,769        1,933,896        2,110,582
                                                             ============     ============     ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>
<TABLE>
<CAPTION>

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 1998, 1997 and 1996

                                       Additional
                                      Common Stock                                           Treasury Stock
                                 -----------------------     Paid-in        Retained     -----------------------       Total
                                   Shares       Amount       Capital        Earnings       Shares       Amount         Equity
                                 -----------  ----------   ------------   ------------   ----------  ------------   ------------
<S>                              <C>          <C>          <C>            <C>            <C>         <C>            <C>        
Balance at December 31, 1995      2,366,314   $   2,366    $ 2,365,118    $ 2,487,838      207,100   $  (537,544)   $ 4,317,778

  Purchase of treasury stock              -           -              -              -      185,650      (657,703)      (657,703)

  Exercise of stock options          15,000          15         42,485              -            -             -         42,500

  Net earnings                            -           -              -        755,948            -             -        755,948
                                 -----------   ---------   ------------   ------------   ----------  ------------   ------------
Balance at December 31, 1996      2,381,314       2,381      2,407,603      3,243,786      392,750    (1,195,247)     4,458,523

  Purchase of treasury stock              -           -              -              -       83,500      (212,890)      (212,890)

  Exercise of stock options          32,500          33         90,905              -            -             -         90,938

  Net earnings                            -           -              -        841,106            -             -        841,106
                                 -----------   ---------   ------------   ------------   ----------  ------------    -----------
Balance at December 31, 1997      2,413,814       2,414      2,498,508      4,084,892      476,250    (1,408,137)     5,177,677

  Purchase of treasury stock              -           -              -              -       41,450      (157,930)      (157,930)

  Net earnings                            -           -              -      1,167,409            -             -      1,167,409
                                 -----------  ----------   ------------   ------------   ----------  ------------   ------------
Balance at December 31, 1998      2,413,814   $   2,414    $ 2,498,508    $ 5,252,301      517,700   $(1,566,067)   $ 6,187,156
                                 ===========  ==========   ============   ============   ==========  ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>
<TABLE>
<CAPTION>

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows
                  Years ended December 31, 1998, 1997 and 1996

                                                                  1998             1997             1996
                                                              ------------     ------------     ------------
<S>                                                           <C>              <C>              <C>
Cash flows from operating activities:
   Net earnings                                               $ 1,167,409      $   841,106      $   755,948
   Adjustments to reconcile net earnings to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                367,789          378,076          392,019
     Deferred income taxes                                         (5,626)         (74,106)         
                                                                                                     (7,515)
     Loss (gain) on disposal of assets                             (3,310)           2,681           15,805
     Changes in assets and liabilities:
       Receivables                                               (933,035)         527,570         (925,254)
       Inventories                                                113,441          (97,798)        (352,281)
       Refundable income taxes                                          -          285,784         (285,784)
       Prepaid expenses and other assets                         (175,439)          36,365          (62,604)
       Net liabilities of discontinued operations                       -                -          (56,813)
       Accounts payable                                          (271,451)         163,680         (474,877)
       Accrued expenses                                           159,755           69,645          (63,121)
                                                              ------------     ------------     ------------
Net cash provided by (used in) operating activities               419,533        2,133,003       (1,064,477)
                                                              ------------     ------------     ------------

Cash flows from investing activities:
   Purchase of property and equipment                            (191,850)        (285,900)        (611,407)
   Proceeds from sale of property and equipment                     8,500           36,666           33,000
   Advances to officers and employees                             (40,609)         (25,647)         (51,270)
   Collection of advances to officers and employees                34,833           28,265           45,500
   Other assets, primarily deposits                                 3,100            6,426            3,171
                                                              ------------     ------------     ------------
Net cash used in investing activities                            (186,026)        (240,190)        (581,006)
                                                              ------------     ------------     ------------

Cash flows from financing activities:
   Exercise of stock options                                            -           90,938           42,500
   Purchase of treasury stock                                    (157,930)        (212,890)        (657,703)
   Borrowings on notes payable to bank                         36,258,601       34,600,365       36,133,863
   Repayments on notes payable to bank                        (36,415,128)     (36,376,567)     (33,978,756)
                                                              ------------     ------------     ------------
Net cash (used in) provided by financing activities              (314,457)      (1,898,154)       1,539,904
                                                              ------------     ------------     ------------

Net decrease in cash                                              (80,950)          (5,341)        (105,579)
Cash at beginning of year                                         304,947          310,288          415,867
                                                              ------------     ------------     ------------
       Cash at end of year                                    $   223,997      $   304,947      $   310,288
                                                              ============     ============     ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6

<PAGE>

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

(1)      Summary of Significant Accounting Policies

         (a)  General

              Abatix    Environmental    Corp.    ("Abatix")    and   subsidiary
              (collectively,  the  "Company")  market  and  distribute  personal
              protection  and  safety   equipment  and  durable  and  nondurable
              supplies  predominantly,   based  on  revenues,  to  the  asbestos
              abatement  industry.  The Company also supplies  these products to
              the  industrial  safety and hazardous  materials  industries  and,
              combined  with  tools  and  tool  supplies,  to  the  construction
              industry.  At  December  31,  1998,  the  Company  operated  eight
              distribution  centers in six states. The Company  discontinued the
              sorbent  manufacturing  business of its wholly  owned  subsidiary,
              International  Enviroguard  Systems,  Inc.  ("IESI"),  a  Delaware
              corporation,   in  December  1994  (see  note  2).  However,  IESI
              continues to import disposable products sold primarily through the
              Company's distribution channels.

              The  preparation  of  financial   statements  in  conformity  with
              generally accepted  accounting  principles  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.

         (b)  Inventories

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

         (c)  Property and Equipment

              Property  and  equipment  are  stated  at cost.  Depreciation  for
              financial  statement  purposes is  provided  by the  straight-line
              method  over  the  estimated   useful  lives  of  the  depreciable
              properties.

         (d)  Impairment of Long-Lived Assets and Long-Lived Assets to Be 
              Disposed Of

              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.

                                      F-7
<PAGE>

         (e)  Revenue Recognition

              Revenue is recognized when the goods are shipped.

         (f)  Earnings per Share

              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
              securities.  As of  December  31,  1998 and  1997,  there  were no
              dilutive  securities  outstanding.  The following table reconciles
              the weighted  average  shares used for basic and diluted  earnings
              per share for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>

                                                    1998             1997             1996
                                                ------------     ------------     ------------
<S>                                             <C>              <C>              <C>      
Weighted average shares outstanding - basic       1,933,769        1,933,896        2,076,241

Dilutive effects of stock options and
     warrants                                             -                -           34,341
                                                ------------     ------------     ------------

Weighted average shares outstanding -
     diluted                                      1,933,769        1,933,896        2,110,582
                                                ============     ============     ============
</TABLE>

         (g)  Statements of Cash Flows

              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, 1998 or 1997.

              The Company paid  interest of  $247,298,  $383,735 and $351,645 in
              1998, 1997 and 1996,  respectively,  and income taxes of $667,963,
              $524,635 and $736,544 in 1998, 1997 and 1996, respectively.

         (h)  Income Taxes

              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

                                      F-8

<PAGE>

              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.

         (i)  Stock-Based Compensation 

              In accordance  with  Statement of Financial  Accounting  Standards
              ("SFAS")  No.  123,  "Accounting  for  Stock-Based   Compensation"
              ("Statement  123"), the Company applies the accounting  provisions
              of Accounting  Principles  Board Opinion No. 25,  "Accounting  for
              Stock   Issued  to   Employees   ("Opinion   25"),   and   related
              interpretations  and  provides  pro forma net income and pro forma
              earnings per share disclosures for employee stock option grants as
              if the  fair-value-based  method defined in Statement 123 had been
              applied.  Compensation  expense is  recorded  on the date of grant
              only if the current market price of the  underlying  stock exceeds
              the exercise price.

         (j)  Comprehensive Income

              SFAS No. 130, "Reporting  Comprehensive Income" ("Statement 130"),
              requires  companies  to report  all  components  of  comprehensive
              income in a financial  statement  that is displayed  with the same
              prominence  as other  financial  statements.  The  Company  has no
              "other comprehensive income."

(2)      Restructuring and Discontinued Operations

         On  December  15,  1994,  the  Company   announced  a  formal  plan  to
         discontinue the sorbent manufacturing  business of IESI and recorded an
         estimated  loss on disposal of IESI in 1994 of $139,487,  net of taxes.
         This estimated loss on disposal primarily included costs related to the
         remaining  lease  obligation  on the  facility,  the writedown of fixed
         assets and inventory to net  realizable  value and the  estimated  loss
         from  operations  up to the  expected  disposal  date.  Except  for the
         remaining  lease  obligation  discussed  below,  actual  costs  through
         December 31, 1996 approximated management's estimate.

         The Company's lease agreement on the building that was occupied by both
         the operations of IESI and the Corpus Christi branch included an option
         enabling  the  Company to purchase  the  building.  In March 1996,  the
         Company purchased this facility and simultaneously sold the building to
         a  third  party.  This  transaction   terminated  the  Company's  lease
         obligation.   Reversal  of  the  liability  for  the  remaining   lease
         obligation   resulted  in  the  special   credit  and   earnings   from
         discontinued operations in 1996.

                                      F-9

<PAGE>

 (3)     Property and Equipment

         A summary of  property  and  equipment  at  December  31, 1998 and 1997
follows:
<TABLE>
<CAPTION>

                                                Estimated
                                               Useful Life           1998             1997
                                             ---------------     ------------     ------------
<S>                                          <C>                 <C>              <C>        
Furniture and equipment                       3 - 10 years       $ 1,767,738      $ 1,676,136
Transportation equipment                       3 - 5 years           423,890          359,006
Leasehold improvements                         3 - 5 years            71,715           70,915
                                                                 ------------     ------------
                                                                   2,263,343        2,106,057
Less accumulated depreciation and
   amortization                                                    1,812,352        1,473,937
                                                                 ------------     ------------
Net property and equipment                                       $   450,991      $   632,120
                                                                 ============     ============
</TABLE>

(4)      Notes Payable to Bank

         At December 31,  1998,  the Company had two lines of credit with a bank
         that are due on demand.  A 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
         $1,500,000,  up to a maximum of  $5,500,000.  Under this  formula,  the
         Company had the  capability to borrow  $5,500,000 at December 31, 1998,
         of  which  approximately  $2,516,000  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,  1998,  the Company  had  borrowed  approximately  $338,000 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.  During  1998,  the Company
         negotiated a one-quarter of one percent reduction in its rate,  thereby
         reducing  the  rate of  interest  on its  agreements  to  prime.  As of
         December  31, 1998 and 1997,  the  Company's  rate of interest on these
         agreements  was 7.75  percent  and 8.75  percent,  respectively.  These
         credit facilities are secured by accounts  receivable,  inventories and
         equipment.

                                      F-10

<PAGE>

 (5)     Income Taxes

         Income tax expense (benefit) for the years ended December 31, 1998, 
1997 and 1996 consists of:
<TABLE>
<CAPTION>

                                                     1998             1997             1996
                                                 ------------     ------------     ------------
<S>                                              <C>              <C>              <C>
Continuing Operations:
  Current:
     Federal                                     $   605,621      $   483,323      $   413,759
     State                                           120,433           82,390           72,083
  Deferred:
     Federal                                          (5,766)         (63,253)         (23,775)
     State                                               141          (10,853)          (1,126)
                                                 ------------     ------------     ------------
        Income tax expense related
             to continuing operations                720,429          491,607           460,941

Discontinued operations:
  Current                                                  -                -           (9,038)
  Deferred                                                 -                -           17,386
                                                 ------------     ------------     ------------
Total income tax expense                         $   720,429      $   491,607      $   469,289
                                                 ============     ============     ============
</TABLE>

         A  reconciliation  of expected  federal income tax expense  relating to
         continuing  operations (based on the U.S.  corporate income tax rate of
         34 percent) to actual  income tax expense for the years ended  December
         31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>

                                                       1998             1997             1996
                                                   ------------     ------------     ------------
<S>                                                <C>              <C>              <C>
Expected income tax expense                        $   641,865      $   453,122      $   406,417
State income taxes, net of related federal
     tax benefit                                        79,579           47,215           46,832
Nondeductible meals and entertainment expense
                                                         6,479           11,119           13,047
Other                                                   (7,494)         (19,849)          (5,355)
                                                   ------------     ------------     ------------
Actual income tax expense relating to
     continuing operations                         $   720,429      $   491,607      $   460,941
                                                   ============     ============     ============
</TABLE>

                                      F-11

<PAGE>

         The tax effects of temporary  differences that give rise to significant
         portions of the  deferred  tax assets and  liabilities  at December 31,
         1998 and 1997 follow:

                                                      1998             1997
                                                  ------------     ------------
Deferred tax assets:
     Allowance for doubtful accounts              $   196,283      $   188,499
     Inventory reserve                                 25,921                -
     Property and equipment, principally due to                              
         differences in depreciation                  120,324          115,531
                                                  ------------     ------------
         Total gross deferred tax assets              342,528          304,030

Deferred tax liabilities - prepaid expenses           (78,905)         (46,033)
                                                  ------------     ------------

         Net deferred tax assets                  $   263,623      $   257,997
                                                  ============     ============

         Management  has  determined,  based on the  Company's  history of prior
         operating  earnings  and its  expectations  for the  future,  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.

(6)      Stockholders' Equity

         Pursuant to a 1993  employment  agreement,  an employee was entitled to
         purchase  10,000  shares  of common  stock in each of the  three  years
         covered by the agreement if certain gross profit levels were  obtained.
         The exercise  price for these options was  established as the bid price
         of the  Company's  stock on the day after  the  employee  achieved  the
         established  gross  profit  level and expired one year from the vesting
         date. In 1994, 1995 and 1996, the employee met the predetermined  gross
         profit levels and vested in these  options.  No  additional  shares are
         available for grant under this plan.

         In 1994, the Company adopted a stock option plan (the "Plan")  pursuant
         to which the Company's  Board of Directors could grant stock options to
         officers and key employees. The Plan authorized grants of up to 140,000
         shares of  authorized  but unissued  common  stock.  Stock options were
         granted  with an exercise  price  equal to or greater  than the stock's
         fair market value at the date of grant. All options vested on the grant
         date. At December 31, 1998 and 1997,  there were no  additional  shares
         available for grant under the Plan. The per share weighted average fair
         value of stock  options  granted  during  1996 was $1.14 on the date of
         grant using the Black Scholes  option-pricing  model with the following
         weighted-average assumptions: risk-free interest rate of 7.0%, expected
         volatility of 58%,  expected dividend yield of 0%, and an expected life
         ranging from one to two years.

                                      F-12

<PAGE>

         The  Company  applies  Opinion No. 25 in  accounting  for its Plan and,
         accordingly,  no  compensation  cost has been  recognized for its stock
         options  in  the  financial  statements.  Had  the  Company  recognized
         compensation  cost  based on the fair  value at the grant  date for its
         stock  options  under  Statement  123,  there would be no effect on the
         Company's  net earnings and earnings per share in 1998 and 1997 and the
         Company's net earnings and earnings per share for 1996 would be reduced
         to the following pro forma amounts:

                                               1996
                                         -----------------
Net earnings:
    As reported                              $755,948
    Pro forma                                $743,609

Diluted earnings per share:
    As reported                                $.36
    Pro forma                                  $.36

         Options  activity  for the three  years ended  December  31, 1998 is as
follows:

                                                                      Weighted
                                                     Number of        Average
                                                    Shares Under     Price Per
                                                       Option           Share
                                                    ------------     ----------
Outstanding at December 31, 1995                        145,000      $    2.71
     Granted                                              7,500           3.88
     Exercised                                          (15,000)          2.83
     Expired                                            (70,000)          2.46
                                                    ------------
Outstanding at December 31, 1996                         67,500           3.06
     Exercised                                          (32,500)          2.80
     Expired                                            (35,000)          2.99
                                                    ------------
Outstanding at December 31, 1997 and 1998                     -
                                                    ============

Shares exercisable at December 31, 1996                  67,500      $    3.06
                                                    ============

         The Company granted various consultants  warrants to purchase shares of
         common stock as part of an agreement  to secure their  services.  These
         warrants were granted with exercise prices equal to or greater than the
         fair market value of the Company's common

                                      F-13

<PAGE>

         stock on the  date of  grant  and  were  exercisable  immediately.  The
         activity of warrants  granted to various  consultants  is summarized in
         the following table:

                                                                    Weighted
                                                                    Average
                                                    Number of      Price Per
                                                     Shares          Share
                                                  ------------     ----------
Outstanding at December 31, 1995                       10,000      $    4.50
     Expired                                          (10,000)          4.50
                                                  ------------
Outstanding at December 31, 1996                            -
                                                  ============

         Since November 1994, the Board of Directors  approved the repurchase of
         726,500 shares of the Company's  common stock, of which the Company has
         purchased 517,700 shares, including 41,450 shares during 1998.

(7)      Benefit Plans

         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  salary 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 $38,154,  $59,195 and $46,549
         during 1998, 1997 and 1996, respectively.

(8)      Fair Value of Financial Instruments

         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.

(9)      Segment Information

         The Company  adopted SFAS No. 131,  "Disclosures  about  Segments of an
         Enterprise  and  Related   Information"  in  1998.   Identification  of
         operating  segments was 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 eight
         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 clothing to companies similar to, and including, Abatix. The
         IESI  operating  segment  distributes  products  throughout  the United
         States.

                                      F-14

<PAGE>

         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 income  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.
<TABLE>
<CAPTION>

                                                Abatix            IESI            Totals
                                             ------------     ------------     ------------
                 1998
----------------------------------------
<S>                                          <C>              <C>              <C>        
Sales from external customers                $34,928,236      $ 2,399,393      $37,327,629
Intersegment sales                                     -          872,332          872,332
Interest revenue                                  15,767               57           15,824
Interest expense                                 238,706                -          238,706
Depreciation and amortization                    363,089            4,700          367,789
Segment profit                                 1,585,546          305,333        1,890,879
Segment assets                                10,706,982          993,048       11,700,030
Capital expenditures                             177,670           14,180          191,850

                 1997
----------------------------------------
Sales from external customers                $33,543,501      $ 1,411,976      $34,955,477
Intersegment sales                                     -          822,721          822,721
Interest revenue                                  36,001              186           36,187
Interest expense                                 381,655                -          381,655
Depreciation and amortization                    374,940            3,136          378,076
Segment profit                                 1,155,745          182,471        1,338,216
Segment assets                                10,011,038          997,816       11,008,854
Capital expenditures                             285,029              871          285,900

                 1996
----------------------------------------
Sales from external customers                $32,214,119      $   852,712      $33,066,831
Intersegment sales                                     -          807,422          807,422
Interest revenue                                  19,840                -           19,840
Interest expense                                 359,712                -          359,712
Depreciation and amortization                    390,865            1,154          392,019
Segment profit                                 1,052,294 (a)      171,330 (b)    1,223,624
Segment assets                                10,847,222          598,642       11,445,864
Capital expenditures                             603,946            7,461          611,407
<FN>

(a)  Amount includes a special credit of $56,711 related to the termination of a
     lease from a closed branch location.  See Note 2.
(b)  Amount includes a special credit of $29,893 related to the termination of a
     lease from a discontinued line of business. See Note 2.
</FN>
</TABLE>

                                      F-15
<PAGE>

         Below is a reconciliation  of (i) total segment profit to earnings from
         continuing   operations   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.
<TABLE>
<CAPTION>

                                                    1998             1997             1996
                                                ------------     ------------     ------------
<S>                                             <C>              <C>              <C>       
Profit for reportable segments                  $ 1,890,879      $ 1,338,216      $ 1,223,624
   Elimination of intersegment profits               (3,041)          (5,503)           1,613
   Pretax earnings from discontinued
      operations                                          -                -          (29,893)
                                                ------------     ------------     ------------
Income from continuing operations before
   income taxes                                 $ 1,887,838      $ 1,332,713      $ 1,195,344
                                                ============     ============     ============

Total assets for reportable segments            $11,700,030      $11,008,854      $11,445,864
   Elimination of intersegment assets            (1,104,525)      (1,154,605)        (767,892)
                                                ------------     ------------     ------------
Total assets                                    $10,595,505      $ 9,854,249      $10,677,972
                                                ============     ============     ============
</TABLE>

         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,  Colorado,  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
         1998,  1997 and 1996,  no single  customer  accounted  for more than 10
         percent of net sales,  although  sales to asbestos  and lead  abatement
         contractors was  approximately  48% of consolidated  net sales in 1998,
         1997 and 1996.  A reduction  in spending on asbestos or lead  abatement
         projects could significantly impact sales.

         Although no vendor accounted for more than 8% of purchases, one product
         class  accounted  for  approximately  18% of net sales  during the last
         three  years.  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.

                                      F-16

<PAGE>

(10)     Commitments and Contingencies

         The Company  leases  warehouse and office  facilities  under  long-term
         noncancelable  operating leases expiring at various dates through March
         2002.  The  following is a schedule of future  minimum  lease  payments
         under these leases as of December 31, 1998:

                              1999          $   415,637
                              2000              227,825
                              2001              128,964
                              2002               32,241
                                            ------------
                                            $   804,667
                                            ============

         Rental expense for continuing operations under operating leases for the
         years ended December 31, 1998, 1997 and 1996 was $589,658, $549,612 and
         $491,374, respectively.

         The Company has  employment  agreements  with four key  employees.  The
         agreements provide for minimum aggregate cash compensation as follows:

                             1999          $   533,325
                             2000              451,600
                             2001              111,600
                             2002                9,300
                                           ------------
                                           $ 1,105,825
                                           ============

         The  Company was named as a defendant  in a product  liability  lawsuit
         resulting in injury.  The Company  received  indemnification  under the
         manufacturer's  insurance and legal  representation  at the cost of the
         manufacturer.  The  Company  received  notification  this  lawsuit  was
         dismissed without prejudice in August 1998.

         In December  1998,  the  Company was named as a defendant  in a lawsuit
         alleging the Company and other defendants together  participated in the
         conversion and unauthorized purchase of inventory totaling $27,756 from
         a  customer  of  the  Company.  The  plaintiff  seeks  actual  damages,
         exemplary damages,  interest and attorney's fees. The Company purchased
         the  inventory  in good  faith and  believed  that the  manager  of the
         customer's Houston facility was representing the customers'  interests.
         Management intends to vigorously defend against this claim.

(11)     Subsequent Events

         In January  1999,  the Company  received  22,766 shares of common stock
         from an officer of the  Company as payment  for  approximately  $80,000
         owed to the  Company.  The  shares  received  from the  officer  of the
         Company are held as treasury shares.

                                      F-17

<PAGE>

         Effective  January 1, 1999,  the Company  consummated an Asset Purchase
         Agreement  with  Keliher  Hardware  Company  ("Keliher"),  a California
         corporation,  pursuant to which the Company  assumed the  operations of
         Keliher.  Keliher, based in Los Angeles,  California,  with a satellite
         facility in Long Beach, is an industrial supply distributor,  primarily
         for the construction and industrial  markets.  The estimated fair value
         of the assets  acquired was  approximately  $1,000,000.  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 $3.375 per share
         and the remainder in cash. This acquisition will be accounted using the
         purchase method.

                                      F-18

<PAGE>
<TABLE>
<CAPTION>
                                                                    Schedule II

                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                        Valuation and Qualifying Accounts
                  Years ended December 31, 1998, 1997 and 1996

                                                               Additions
                                              Balance at       charged to
                                             beginning of      costs and                        Balance at
                                                 year           expenses        Deductions      end of year
                                             ------------     ------------     ------------     ------------
<S>                                          <C>              <C>              <C>              <C>
Year ended December 31:
   Allowance for Doubtful Accounts:
       1998                                  $   495,092          114,515           94,911  A       514,696
                                             ============     ============     ============     ============

       1997                                  $   376,117          215,396           96,421  A       495,092
                                             ============     ============     ============     ============

       1996                                  $   343,750          196,772          164,405  A       376,117
                                             ============     ============     ============     ============

   Inventory Reserve:
       1998                                  $         -           69,321                -           69,321
                                             ============     ============     ============     ============

   Reserve for Loss on Discontinuance of
     Business:
       1996                                  $    54,050                -           54,050  B             -
                                             ============     ============     ============     ============

   Reserve for Loss on Closure of Branch
     Location:
       1996                                  $    72,298                -           72,298  B             -
                                             ============     ============     ============     ============
<FN>

A     Represents the write-off of uncollectible accounts.
B     Primarily  represents the reversal of the reserves due to the  termination
      of  the  Company's  lease  obligation.  See  Note  2 to  the  consolidated
      financial statements.
</FN>
</TABLE>
                                      S-1