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, 2003

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

Registrant's  telephone
number, including area code:  (214) 381-0322


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.
[  ]

Indicate by check mark
whether the registrant is an accelerated filer (as defined by Rule 12b-2 of
the Act).  Yes [  ]      No [X]

The aggregate market value
of the registrants common stock held by non-affiliates on
June 30, 2003 (based on the closing stock price on the Nasdaq Stock
Market on such date) was approximately $3,531,000.

1,711,148 shares of common
stock, $.001 par value, were issued and outstanding on March 26, 2004.

Portions of the
Registrants proxy statement for its 2004 Annual Meeting of Stockholders
are incorporated into Part III, herein, by this reference thereto.

---

PART I

Item 1.
Business

(a)  
  Development of Business

Abatix Corp. (the
Company) markets and distributes personal protection and safety
equipment and durable and nondurable supplies predominantly to the environmental
industry, the industrial safety industry, the homeland security industry and,
combined with tools and tool supplies, to the construction industry. The
Company, through its wholly owned subsidiary, International Enviroguard Systems,
Inc. (IESI), imports disposable clothing sold through the Company
and other distribution companies not in direct competition with Abatix.

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.
in March 1984. To prepare for its initial public offering of its securities in
March 1989, Abatix incorporated in Delaware on December 5, 1988 to effect and
complete an Agreement and Plan of Merger with T&T Supply on
December 9, 1988.

As opportunities to enter
new markets arose over the years, the Company expanded geographically. The basic
growth philosophy has been to find the right people, and then determine if the
geographic market can support a full service sales office/distribution center.
During our history, the following branches, beyond our initial Dallas location,
have opened:

    o San Francisco  December 1988
    o Houston  February 1990
    o Los Angeles  August 1991
    o Phoenix  January 1993
    o Denver February 1993
    o Seattle  January 1994
    o Las Vegas  December 1995

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

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

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

The Company intends to
expand and diversify the revenue base through hiring additional personnel,
adding product lines, opening new locations and acquiring other companies, if
appropriate. Furthermore, the Company maintains an e-commerce solution,
including on-line ordering, to help solidify relationships with the existing
customer base and expand its geographic presence.

(b)  
Financial Information About Operating Segments

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

(c)  
Narrative Description of Business

Based on 2003 sales,
approximately 47 percent of the Companys products are sold to
environmental contractors, 19 percent to construction related firms, 19 percent
to the industrial safety market and 15 percent to other firms. The Company
believes a majority of its sales for the foreseeable future will continue to be
made to environmental contractors and considers its relationship with its
customers to be excellent.

Environmental Industry

Asbestos Abatement Industry

Between 1900 and the early
1970s, asbestos was extensively used for insulation and fireproofing in
industrial, commercial and governmental facilities as well as private residences
in the United States and in other industrialized countries. In the
mid-1980s it was estimated that in the United States, approximately 20
percent of all buildings, excluding residences and schools, contained friable
asbestos-containing materials that were brittle and were susceptible to the
release of asbestos dust. Various diseases, such as asbestosis, lung cancer and
mesothelioma, have been linked to the exposure to airborne asbestos. Through
medical studies, the public has become aware of the diseases associated with
asbestos.

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

---

Lead Abatement Industry

The hazards of lead-based
paint have been known for many years; however, the federal and state regulations
requiring identification, disclosure and cleanup have been minimal. In early
1996, the Environmental Protection Agency (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 such, if known.

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

Mold Remediation Industry

Although mold remediation
has been around for years, litigation over the past several years surrounding
the health hazards of human exposure to mold has created public awareness and is
forcing property owners and the construction industry to deal with the problem.
To grow, mold needs moisture, a carbon source (wood, plasterboard, natural
fibers, or any organic matter), lack of air movement and little to no light. The
energy crisis in the 1970s inspired many energy efficiency programs,
including the building of structures that promoted less air movement. When a
moisture source is introduced, the conditions are ripe for mold growth.

Although there are
approximately 100,000 species of fungi, about 100 are considered to be
pathogenic to humans. Currently, there are few regulations concerning mold
levels or mold remediation. However, in 2003, the Institute of Inspection,
Cleaning and Restoration Certification adopted S520, Mold Remediation
Standard and Reference Guide. The S520 Standard describes the procedures
to be followed and the precautions to be taken when performing mold remediation.
This new Standard should help level the playing field as contractors removing
mold now have some guidance.

Many asbestos and lead
abatement contractors added mold remediation to their range of services. In
addition, fire, water, and smoke restoration contractors added mold remediation
to their range of services. The Company had very few sales to restoration
contractors before the heightened awareness of mold. In late 2000, the Company
began to see high levels of activity from this industry, primarily in Texas. The
growth in this industry continued into the early part of the fourth quarter of
2002, but has since slowed significantly. This slowdown has occurred primarily
because insurance laws in Texas changed to eliminate or limit the insurance
companies exposure to mold liabilities, resulting in fewer projects being
undertaken. While there has been some increased legal activity in states other
than Texas, the limited liability on insurance policies has inhibited the growth
of this industry.

---

Homeland Security

A December 2003 industry
report published by U.S. Bancorp Piper Jaffray (Piper Jaffray)
indicates the Security industry currently generates over $120 billion in
annual revenue on a global basis and is expected to grow at 8.5 percent
through 2006. The United States accounts for approximately $43 billion of
the current global revenue and is projected to grow at approximately
7 percent reaching $60 billion in 2006. The Piper Jaffray report
breaks down the industry into segments, and estimates the Personal Safety
Products segment generates $4 billion in annual domestic revenue. In addition,
this report depicts that funding for the Department of Homeland Security is
approximately 50 percent of the total domestic revenue generated. While
state and local governments account for some of the difference, the private
sector is also considered to be a significant participant in this industry.

Seeing an opportunity to
leverage our current product lines with some additional lines, including
consulting and training, the Company entered the Homeland Security market in
August 2002. Initially, much of the activity in this industry has been with the
public sector attempting to outfit the first responders. Because these
activities are broad in scope and tend to be large dollar orders, the purchasing
departments for these governmental entities solicit bids and generally select
the lowest product cost. In addition, the sales cycle tends to be long and can
sometimes be unrewarding. To meet these challenges, we changed some of our
processes to lower our costs related to these types of orders.

We are also working with
the private sector businesses, which traditionally focus on the value Abatix
provides, and less on the price of the product. Albeit small, we have been
successful in selling to the private sector. As the economy continues to
strengthen, we expect companies to invest more dollars in our products and
services so their facilities and personnel are prepared. However, unless there
are regulations mandating security products or another attack similar to
September 11th, the private sector may not be willing to invest
significant dollars.

Construction Tools
Supply
Industry

Besides the normal hand and
power tools, and associated consumable parts, supplied to the construction
industry, the EPA and Occupational Safety and Health Administration
(OSHA) have also established certain rules and regulations governing
the protection of the environment and the protection of workers in this
industry.

Currently, the Company
supplies the construction tools industry in its Las Vegas, Los Angeles, and
Phoenix facilities and on a limited basis from its other facilities. This
industry is directly tied to the local economies and more specifically, the real
estate conditions within those markets. The real estate industry initially
declined after the events of September 11, 2001, stabilized in 2003 and has
shown signs of improvement in early 2004. The Company anticipates this industry
to improve in 2004 as the economy continues to improve.

---

Industrial Safety
Industry

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

As research identifies the
degree of environmental or health risk associated with various substances and
working conditions, new rules and regulations can be expected. These actions
inevitably will require more expenditure for supplies and equipment for
handling, remediation and disposal of hazardous substances and the creation of
safe living and working conditions. However, potentially offsetting these gains
are manufacturing automation, productivity improvements and movement of labor
intensive operations offshore.

Geographic Distribution
of Business

The Company distributes
over 20,000 industrial, construction tool, personal protection, safety and
hazardous waste remediation products to over 5,000 active customers primarily
located in the Southwest, Midwest, Pacific Coast, Alaska and Hawaii.

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

Equipment and Supplies

An estimated 37 percent of
the Companys current year sales were environmental products and
33 percent were safety products, while construction tools and supplies
accounted for 17 percent. The remaining 13 percent of sales were miscellaneous
products used by environmental contractors, construction contractors and
industrial manufacturing facilities.

The Company buys products
from manufacturers based on orders received from its customers as well as
anticipated needs based on prior buying patterns and customer inquiries. The
Company maintains an inventory of disposable products and commodities as well as
low cost equipment items. Approximately 80 percent of the Companys
sales are of disposable items and commodity products, which are sold to
customers at unit prices ranging from under $1.00 to $50.00. The balance of
sales is attributable to items consisting of lower priced equipment beginning at
$20.00 to major product assemblies such as decontamination trailers which retail
for approximately $15,000. The Company currently does not manufacture or lease
any products. On a very limited scale, the Company provides warranty repair on
certain equipment. The Company distributes, on a limited basis, disposable items
under its own private label.

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

---

Marketing

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

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

The Company also has a web
site, www.abatix.com, which allows customers to place orders on-line. Currently
the web site contains approximately 6,000 products. In addition to on-line
ordering, the web site has current industry and Company information, including
historical press releases and publicly-traded filings with the Security and
Exchange Commission.

Backlog

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

Inflation

The inflation rate for the
U.S. economy has been relatively low over the past several years, with the 2003
inflation rate around 2 percent. The 2004 inflation rate is expected to be in
this same range. The Company believes inflation has not been a substantial
concern nor is it expected to have a material impact to the Companys
operations or profitability in the near term, if it remains stable. The Company
anticipates increased cost in some of its products during 2004, but we
anticipate we will be able to pass along these increases to our customers in the
form of higher selling prices, thereby having little effect on product margins.

In addition, the Company,
over the past several years, has battled deflation in the cost of many of its
products, creating the environment of having to sell more units to generate an
equivalent dollar sales volume. While it is not expected to be significant in
2004, we do expect some deflation in some of our products which could have a
negative impact on dollar sales volumes.

Environmental Impact

The Company distributes a
variety of products in the environmental industry which requires the Company to
maintain Material Safety Data Sheets (MSDS) on file. These MSDS
inform purchasers and users of any potential hazards which could occur if the
products spill or leak. 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 and has safety procedures in place to minimize any
impact if such an event occurred.

Seasonality

Historically, the
environmental supply business has been seasonal as a result of the substantial
amount of work performed in educational facilities during the summer months or
during other vacation periods when the weather is generally more conducive to
construction. The Company believes seasonality is not a major characteristic in
the non-educational or private sector, which includes the industrial, commercial
and residential markets. In addition to the private sector environmental
business, the Companys expansion of the construction and industrial safety
supply markets has mitigated most seasonal impacts of government environmental
projects on the Companys sales. Historically, the Company generates 23
percent, 27 percent, 27 percent and 23 percent of its sales in the first,
second, third and fourth quarters, respectively.

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

Government Regulation

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

Competition

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

---

Employees

As of February 28, 2004,
the Company employed a total of 100 full time, non-union employees including 3
executive officers, 20 managers, 51 administrative and marketing personnel and
26 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 8,100 square
feet of leased general office space. This lease expires in February 2005. As of
December 31, 2003, the seven distribution facilities lease a total of
172,766 square feet of general office and warehouse space. These facilities
range in size from 9,090 square feet to 31,675 with leases expiring between
December 2004 and July 2010.

Item 3.  Legal
 Proceedings

None

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

None

---

PART II

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

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

| |  |                 |  | Common Stock
| |  | --------------- |  | ------------
| |  |                 |  | Bid Price   
| |  | 2002            |  |             
| |  | First Quarter   |  | $           
| |  | Second
Quarter  |  |             
| |  | Third Quarter   |  |             
| |  | Fourth Quarter  |  |             
| | 
| |  | 2003           
| |  | First Quarter   |  | $           
| |  | Second
Quarter  |  |             
| |  | Third Quarter   |  |             
| |  | Fourth
 Quarter |  |             
|
|

On March 23, 2004, the
closing price for the common stock was $3.90.

1. As of March 23, 2004, the approximate number of holders of
record of the Company's common stock was approximately 200.

1. The  Company  has never  paid cash  dividends  on its common  stock.  Future
dividend  policy will depend on the Company's  earnings,  capital  requirements,
expansion plans, financial conditions, tax laws and other relevant factors.

---

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).

|                                                                    |  | Year Ended December 31,
|------------------------------------------------------------------- |  | -----------------------
|                                                                    |  | 2003                   
|Selected
Operating Results:                                        
|Net sales                                                           |  | $ 48,893               
|Gross profit                                                        |  | $ 14,050               
|Earnings before cumulative effect                                  
|of change in accounting principle                                   |  | $ 61                   
|Cumulative effect of change in accounting principle a               |  | -                      
|Net earnings bc                                                     |  | $ 61                   
|Basic and
diluted net earnings per common share:                   
|Earnings before cumulative effect of change in accounting principle |  | $ .04                  
|Cumulative effect of change in accounting principlea                |  | -                      
|Net earningsbc                                                      |  | $ .04                  
|Basic and
diluted weighted average shares outstanding               |  | 1,711                  
|                                                                   
|                                                                    |  | As of December 31,     
|                                                                    |  | 2003                   
|Selected Balance Sheet Data:                                       
|Current assets                                                      |  | $ 14,617               
|Current liabilities                                                 |  | 7,590                  
|Total assets                                                        |  | 16,342                 
|Total liabilities                                                   |  | 7,590                  
|Retained earnings                                                   |  | 8,432                  
|Stockholders' equity                                                |  | 8,752                  
|                                                                   

aThe  cumulative
effect of change in accounting principle resulted from the adoption of Financial
Accounting  Standards Board ("FASB") Statement of Financial Accounting Standards
("Statement")  No. 142  "Goodwill and Other  Intangible  Assets." See Item 7 for
further details.

b
The 2001 and 2002 results include the increase in sales related to the affects
of Tropical Storm Allison in Texas. In addition, the Company, primarily in the
Texas markets, experienced a significant growth in sales related to the
increased awareness of toxic molds in homes and buildings. The 2003 results
reflect the decline in mold remediation sales.

c
The 1999 results include the closure of the Companys Denver facility which
occurred in April 1999. In addition, the 1999 results include the acquisitions
of Keliher Hardware in January 1999 and North State Supply Co. of Phoenix in
June 1999. See Item 1 for further details.

---

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

# Introduction
and Overview

This discussion and
analysis of our results of operations and financial condition is intended to
provide investors with an understanding of the Companys past performance,
its financial condition and its prospects.

The Company is a supplier
of mainly safety related products to workers. We operated seven fully-stocked
distribution facilities/sales offices in the western and southwest part of the
United States. Historically, the most reliable method of profitable growth has
been opening new locations. The significant decline in revenues in 2003 was
unexpected and, although we remained profitable, we were not able to match our
costs to those declining revenues as quickly.

Our goals for 2004 are to
produce top line growth as well as improved profitability. Geographic expansion
as well as organic growth will be critical to our top line growth. In addition,
the Company will need to further reduce costs to stay competitive. Approximately
80 percent of our selling, general and administrative costs are in three
categories  labor related costs, rent and freight. We plan to evaluate our
staffing needs and benefit programs to ensure we have the best people in the
industry and that they are compensated fairly. In addition, we will review our
facility leases as they renew and our fixed costs and attempt to do more with
less space through the use of better logistics. Finally, we will review our
negotiated deals with freight companies to ensure we are receiving the best
service for the best price and pass on, where appropriate, the costs to our
customers.

## Year Ended
December 31, 2003 Compared to Year Ended December 31, 2002

Consolidated net sales for
the year ended December 31, 2003, decreased 18 percent to $48,893,000 from 2002.
The Abatix operating segment net sales declined 19 percent to $46,933,000 in
2003 and the IESI operating segment net sales decreased 3 percent to $1,961,000
in 2003. The decrease in revenue at the Abatix operating segment is primarily
attributable to the decline in insurance coverage related to molds in homes and
buildings throughout the U.S. In 2002 the Texas Insurance Commission limited the
insurance companies liability related to mold which would naturally
decrease the number of mold related jobs performed by our customers. At that
time, the consensus from people in the industry was the backlog of mold related
jobs was sufficient to last two years. In actuality, the decline was more severe
than anticipated. Between the fourth quarter 2002 and the second quarter 2003,
the Company experienced a 60% decline in mold remediation sales.

The decline in sales at the
Abatix operating segment was also attributed to the general U.S. economic
conditions and the real estate conditions in our local markets. As the economy
recovers, spending for new construction and production at industrial
manufacturing facilities should improve and positively impact our business.

---

The decline in sales at
IESI was primarily due to the loss of business at two large customers, partially
offset by adding new customers during the year. The loss of business resulted
from one customer being purchased and the other customer losing a large contract
which used IESI products.

The Company entered the
homeland security industry in late 2002 and invested a significant amount of
resources to this market. The private sector was projected to spend more than
the public sector and with our ability to build relationships, we could capture
a share of the private security dollars. To date, the private sector has
remained a small player in our portion of this industry. The public sector has
been the predominant customer, however most of their orders are bid upon by
numerous suppliers. While we have been active in the bidding of these products
and have won several bids, these orders are generally at lower prices than the
private sector. We anticipate the private sector will spend more money on our
products as the general economic conditions improve.

During the first quarter of
2004, the Company experienced some unexpected personnel turnover. While this
turnover will have a short-term impact on our operations, the Company has
already taken appropriate action and hired replacements that should mitigate any
long-term issues.

Gross profit for 2003 of
$14,050,000 decreased 19 percent from gross profit in 2002 due to decreased
sales volume. The Companys gross profit margins, expressed as a percentage
of sales, were approximately 29 percent for 2003 and 2002. Although overall
margins are expected to remain at their current levels in 2004, competitive
pressures could negatively impact any and all efforts by the Company to maintain
or improve product margins.

Selling, general and
administrative expenses for 2003 of $13,719,000 decreased 9 percent over 2002.
The decrease in selling, general and administrative expenses is due primarily to
decreased selling costs, primarily commissions, caused by the lower sales
volume. These expenses were 28 percent and 25 percent of sales for
2003 and 2002, respectively. Due to the lower sales volume that occurred in
2003, the Company made several adjustments to its staffing levels during 2003,
the full impact of which will be included in 2004. However, many of the
Companys costs are fixed and unless some of these fixed costs are reduced
or eliminated, selling, general and administrative expenses will be in the 26 to
27 percent range for 2004.

Interest expense of
$179,000 decreased $52,000 from 2002 primarily due to lower interest rates and
lower borrowings. The Companys credit facilities are variable rate notes
tied to the lending institutions prime rate. Increases in the prime rate
could negatively affect the Companys earnings.

In the first quarter of
2002, the Company implemented FASB Statement No. 142. Statement No. 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions for annual impairment testing of
existing goodwill and other intangibles. Upon adoption of Statement No. 142, the
Company ceased amortizing goodwill and performed an impairment review of its
goodwill balance. Based on the review performed, the Company recorded a goodwill
impairment charge for the full amount of $819,841, net of an income tax benefit
of $327,900.

---

Net earnings for the year
ended December 31, 2003, of $61,000 or $.04 per share decreased $792,000 from
net earnings of $853,000 or $.50 per share in 2002. The decrease in net earnings
is primarily due to the lower sales volume in 2003 without a corresponding
decrease in selling, general and administrative expenses.

## Year Ended
December 31, 2002 Compared to Year Ended December 31, 2001

Consolidated net sales for
the year ended December 31, 2002, increased 9 percent to $59,801,000 from 2001.
The Abatix operating segment net sales grew 10 percent to $57,774,000 in 2002
and the IESI operating segment net sales decreased 10 percent to $2,027,000 in
2002. The increase in revenue at Abatix was primarily attributable to the
expanding awareness of toxic molds in homes and buildings throughout the U.S.,
partially offset by a decline in revenues to the construction and industrial
manufacturing industries. The decrease in IESI revenue is due to the exit from a
distribution channel during the second quarter of 2001.

Gross profit for 2002 of
$17,437,000 increased 13 percent from 2001 due to increased sales volume. The
Companys gross profit margins, expressed as a percentage of sales, were
approximately 29 percent for 2002 and 28 percent for 2001.

Selling, general and
administrative expenses for 2002 of $15,000,000 increased 15 percent over 2001.
The increase in selling, general and administrative expenses is due primarily to
increased labor costs in anticipation of continued growth. These expenses were
25 percent and 24 percent of sales for 2002 and 2001, respectively.

Interest expense of
$231,000 decreased $149,000 from 2001 interest expense primarily due to lower
interest rates. The Companys credit facilities are variable rate notes
tied to the Companys lending institutions prime rate.

In the first quarter of
2002, the Company implemented FASB Statement No. 142. Statement No. 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions for annual impairment testing of
existing goodwill and other intangibles. Upon adoption of Statement No. 142, the
Company ceased amortizing goodwill and performed an impairment review of its
goodwill balance. Based on the review performed, the Company recorded a goodwill
impairment charge for the full amount of $819,841, net of an income tax benefit
of $327,900.

Net earnings for the year
ended December 31, 2002, of $853,000 or $.50 per share decreased $353,000 from
net earnings of $1,206,000 or $.70 per share in 2001. The decrease in net
earnings is primarily due to the implementation of FASB Statement No. 142.

## Liquidity and
Capital Resources

Historically, the
Companys working capital requirements, when sales are increasing, result
from the growth of its accounts receivable and inventories and purchases of
fixed assets. To fund these requirements, the Company uses earnings, net of
non-cash charges, increases in accounts payable and accrued expenses and
borrowings from its lines of credit. With a decline in sales, as in 2003, the
Companys cash requirements result from purchases of property and equipment
and repayments on its lines of credit. To fund these requirements, the Company
uses its earnings, net of non-cash charges, and its decrease in accounts
receivable.

Net cash provided by
operations during 2003 of $1,247,000 resulted from net earnings adjusted for
non-cash charges and the decrease in accounts receivable resulting from the
lower sales, partially offset by a decrease in accrued expenses. Cash flow from
operations for the entire year of 2004 is expected to be positive, although at
any given point, it may be negative. The Companys accounts receivable
collection days and inventory turns have not fluctuated significantly over the
past several years. Therefore, corresponding with the sales decline in 2003, the
accounts receivable and, to a lesser extent, inventory have declined as well.

Cash requirements for
non-operating activities during 2003 resulted primarily from the purchases of
property and equipment. In addition, the Company was able to pay down its
working capital line of credit as a result of the cash generated from collection
of accounts receivable and lower inventory amounts. The equipment purchases in
2003 were primarily related to the new computer system any new locations.

# Contractual
Obligations

The following table
presents the Companys total contractual obligations for which cash flows
are fixed or determinable (in thousands).

|                                |  | 2004    |  | 2005  |  | 2006  |  | 2007  |  | 2008  |  | 2009  |  | 2010  |  | Total  
|------------------------------- |  | ------- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | -------
|Contractual
obligations:       
|Operating leases                |  | $ 1,182 |  | $ 730 |  | $ 445 |  | $ 190 |  | $ 118 |  | $ 118 |  | $ 117 |  | $ 2,900
|Working capital
 line of credit |  | 4,426   |  | -     |  | -     |  | -     |  | -     |  | -     |  | -     |  | 4,426  
|Equipment notes                 |  | 52      |  | 31    |  | 14    |  | -     |  | -     |  | -     |  | -     |  | 97     
|Employment contracts            |  | 432     |  | -     |  | -     |  | -     |  | -     |  | -     |  | -     |  | 432    
|Computer system                 |  | 88      |  | -     |  | -     |  | -     |  | -     |  | -     |  | -     |  | 88     
|Open purchase
orders            |  | 633     |  | -     |  | -     |  | -     |  | -     |  | -     |  | -     |  | 633    
|Office
equipment leases         |  | 19      |  | 1     |  | -     |  | -     |  | -     |  | -     |  | -     |  | 20     
|Total contractual obligations   |  | $ 6,832 |  | $ 762 |  | $ 459 |  | $ 190 |  | $ 118 |  | $ 118 |  | $ 117 |  | $ 8,596

## Commentary:

- The Companys working capital line of credit agreement includes a feature
that allows the bank to call the debt; therefore, the debt is classified as a
current liability on the Consolidated Balance Sheets and included above. This
line of credit contains no defined payment schedule.
- The Companys equipment notes are comprised of term notes of 36 to 60
months in length. These term notes also have a call feature, and therefore are
classified as current liabilities on the Consolidated Balance Sheets.
- The Company has employment agreements with two officers. Generally, these
agreements cover two years, with the current agreement set to expire at the end
of 2004.
- As part of the negotiation of the Companys new computer system which was
implemented on December 1, 2003, the Company deferred payment of $88,000 until
May 1, 2004.
- The open purchase orders represent amounts the Company anticipates will become
payable within the next year, primarily for saleable product.

The Company is exploring
geographic expansion for 2004. A new location would require approximately
$100,000 in fixed asset purchases, comprised of computers, office furniture,
warehouse racking and potentially a delivery vehicle. In addition, cash will
also be required to stock this location with product and to finance the
customers purchases. Cash flow from operations and borrowings on our lines
of credit will be used to finance any new location.

With the exception of
opening locations, other fixed asset purchases anticipated for 2004 will include
primarily replacement of computers, office furniture and delivery vehicles.

The Company has an
$8,000,000 working capital line of credit at a commercial lending institution.
The working capital line of credit agreement allows the Company to borrow up to
80 percent of the book value of eligible trade receivables plus the lesser of 40
percent of eligible inventory or $2,000,000. As of March 24, 2004, there are
advances outstanding under this credit facility of $5,178,000. Based on the
borrowing formula, calculated as of February 29, 2004, the Company had the
capacity to borrow up to $7,393,000. The Company also maintains a $500,000
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, 2004, were $77,000. Both credit facilities are payable on demand and bear a
variable rate of interest tied to the prime rate.

Management believes the
Companys current credit facilities, together with cash provided by
operations, will be sufficient for its capital and liquidity requirements for
the next twelve months. In the event the Company pursues acquisitions or a more
aggressive growth strategy, it will most likely be unable to use its common
stock as payment or as a source of cash. Therefore, the Company might need to
negotiate with a lender to secure additional borrowings to be used to achieve
those plans.

## New Accounting
Standards

In June 2002, the Financial
Accounting Standards Board (FASB) issued Statement No. 146
Accounting for Costs Associated with Exit or Disposal Activities.
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and supercedes Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal difference between this
Statement and Issue 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entitys commitment to an exit plan. A fundamental
conclusion reached by the Board in this Statement is that an entitys
commitment to a plan, by itself, does not create a present obligation to others
that meets the definition of a liability. Therefore, this Statement eliminates
the definition and requirements for recognition of exit costs in Issue 94-3.
This Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of this Statement had no impact on the Company.

In December 2002, the FASB
issued Statement No. 148 Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement No. 123". This
Statement amends Statement No. 123 and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Statement No. 148 also requires prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based compensation and the effect of the method used on
reported results. Statement No. 148 permits two additional transition methods
for entities that adopt the fair value based method. These methods allow
Companies to avoid the ramp-up effect arising from prospective application of
the fair value based method. This Statement is effective for financial
statements for fiscal years ending after December 15, 2002. The
adoption of this Statement has had no impact on the Company.

On January 1, 2003, the
FASB issued Interpretation (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires disclosure of
guarantees. It also requires liability recognition for the fair value of
guarantees made after December 31, 2002. The adoption of FIN 45 has had no
impact on the Company.

In May 2003, FASB issued
Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. Statement No. 150 requires
that certain instruments classified as part of stockholders equity or
between stockholders equity and liabilities be classified as liabilities.
In October 2003, the FASB deferred indefinitely a provision of this Statement
that would have required certain minority interests in less than
100 percent owned subsidiaries to be classified as liabilities. The Company
has no instruments that would be affected by Statement No. 150.

In December 2003, the FASB
issued FIN 46 (Revised December 2003), Consolidation of Variable Interest
Entities, an Interpretation of ARB 51, (FIN 46R). FIN 46R
requires consolidation of entities in which the Company is the primary
beneficiary, despite not having voting control. Likewise, it does not permit
consolidation of entities in which the Company has voting control but is not the
primary beneficiary. The adoption of FIN 46R has had no impact on the
Company.

## Critical
Accounting Policies

The Company follows certain
significant accounting policies when preparing its consolidated financial
statements. A summary of these policies is included in Note 1 of the Notes to
the Consolidated Financial Statements.

Certain policies require
the Company to make significant and subjective estimates and assumptions, which
are sensitive to deviations from actual results. In particular, the Company
makes estimates regarding future undiscounted cash flows from the use of
long-lived assets in assessing potential impairment whenever events or changes
in circumstances indicate the carrying value of a long-lived asset may not be
recoverable. Since there were no events or changes in circumstances to indicate
the carrying value of long-lived assets were impaired, the Company recorded no
adjustment to the carrying value of these assets. The Company does not expect
events or circumstances to significantly change, thereby affecting the carrying
value of long-lived assets.

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

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

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. Based on the Companys debt at
December 31, 2003 and 2002, an increase of 100 basis points in the United States
prime rate would have negatively impacted the Companys net earnings for
the years then ended by $27,000 and $30,000, respectively.

Except for the historical
information contained herein, the matters set forth in this Form 10-K are
forward looking and involve a number of risks and uncertainties. Among the
factors that could cause actual results to differ materially are the following:
an attack similar to the one of September 11, 2001, the long-term
impact of insurance coverage on mold remediation jobs, adverse weather
conditions, inability to hire and train quality people or retain current
personnel, changes in interest rates or strong competition. In addition,
increases in oil prices or shortages in oil supply could significantly impact
the Companys petroleum based products and its ability to supply those
products at a reasonable price.

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

Item 9A.
Controls and Procedures

As of December 31, 2003,
the Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures.
Based upon that evaluation, the Companys management, including the Chief
Executive Officer and Chief Financial Officer, concluded the Companys
disclosure controls and procedures were effective as of December 31, 2003. On
December 1, 2003, the Company implemented a new computer software system that
includes an integrated general ledger package. This implementation did not
significantly affect the Companys disclosure controls and procedures.
Other than the new computer software system, there have been no significant
changes during the period covered by this report in the Companys internal
control over financial reporting or in other factors that could significantly
affect internal control over financial reporting.

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, 2003.

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, 2003.

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, 2003.

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, 2003.

Item 14.
Principal Accounting Fees and Services

This Item 14 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, 2003.

---

PART IV

Item 15.  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.

|(b)    | Reports on
Form 8-K                                                                                                                                                                               
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | (i)  Third quarter 2003
earnings release, furnished on October 31, 2003                                                                                                                           
|       | (ii) Resignation of Daniel
 M. Birnley as director, filed January 29, 2004                                                                                                                        
|      
|(c)    | Exhibits                                                                                                                                                                                          
|      
|(2)(a) | Agreement of Merger filed
as Exhibit (2) to the  Registration  Statement on Form S-18, filed January 11,
1989, and herein incorporated by reference.                                              
|      
|(2)(b) | Asset Purchase  Agreement
  filed as Exhibit  (2)(b) to the  Report on Form 8-K,  filed
October 19, 1992, and herein incorporated by reference.                                                   
|      
|(2)(c) | Asset
Purchase  Agreement for Keliher  Hardware Company filed as exhibit (2)(c) to the
Report  on  Form  10-K  for  the  year  ended  December  31,  1998,  and  herein
incorporated by reference.
|      
|(2)(d) | Asset
Purchase  Agreement  for North State Supply Co. of Phoenix  filed with Report on
Form 8-K on June 15, 1999, and herein incorporated by reference.                                           

|(3)(a)(1)    | Certificate  of
  Incorporation  filed as Exhibit  (3)(a)(1) to the  Registration
Statement on Form S-18, filed January 11, 1989; filed  electronically as Exhibit
3(i)(a) to the Form 10-Q for the  quarter  ended  December  31,  1995,  filed on
November 9, 1995, and herein incorporated by reference.                                         
|------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            
|(3)(a)(2)    | Certificate  of  Amendment
  of  Certificate  of  Incorporation  filed as Exhibit
(3)(a)(2) to the  Registration  Statement on Form S-18,  filed January 11, 1989;
filed  electronically  as Exhibit 3(i)(b) to the Form 10-Q for the quarter ended
December  31,  1995,  filed on  November  9, 1995,  and herein  incorporated  by
reference.     
|            
|(3)(a)(3)    | Certificate  of Amendment
 of Certificate  of  Incorporation  filed as
Exhibit  (3)(i)(c)  to the Form 10-Q for the quarter  ended  December  31, 1995,
filed November 9, 1995; filed electronically as Exhibit 3(i)(c) to the Form 10-Q
for the quarter ended  December 31, 1995,  filed on November 9, 1995, and herein
incorporated by reference.
|            
|(3)(b)       | Bylaws
filed as  Exhibit  (3)(b) to the  Registration  Statement  on Form  S-18,  filed
January 11, 1989; filed electronically as Exhibit 3(ii) to the Form 10-Q for the
quarter  ended  December  31,  1995,  filed on  November  9,  1995,  and  herein
incorporated by reference.                                                                
|            
|(4)(a)       | Specimen
Certificate  of  Common  Stock  filed  as  Exhibit  (4)(a)  to the  Registration
Statement  on Form  S-18,  filed  January 8, 1989,  and herein  incorporated  by
reference.                                                                                                                                                               
|            
|(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,  and  herein
incorporated by reference.                                                                                                                                               
|            
|(10)(a)(v)   | Employment Agreement with
 Terry W. Shaver effective January 1, 2003.                                                                                                                                                                                                                                                                               
|            
|(10)(b)(v)   | Employment Agreement with
 Gary L. Cox effective January 1, 2003.                                                                                                                                                                                                                                                                                   
|            
|(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,  and  herein  incorporated  by
reference.                                                                                       
|            
|(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,  and  herein
incorporated by reference.                                                                                                                                                        
|            
|(23)         | Consent of
Independent Auditors.*                                                                                                                                                                                                                                                                                                                   
|            
|(31)(a)      | Certification of Chief
Executive  Officer  required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities  Exchange Act of 1934, as amended (the "Exchange Act").*                                                                                                                                                                                  
|            
|(31)(b)      | Certification of Chief
Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act.*                                                                                                                                                                                                                                         
|            
|(32)(a)      | Certification  of Chief
 Executive  Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the
Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States
 Code.*                                                                                                                                                                
|            
|(32)(b)      | Certification  of Chief
Financial  Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the
Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.*                                                                                                                                                                  
|            

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

---

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, 2004.

|ABATIX CORP.
        (Registrant)         
|------------------------------------------
|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, 2004
|Terry W. Shaver      | and Director
(Principal Executive Officer)  |               
|                     |                                             |               
|/s/ Gary L.
 Cox     | Executive Vice
President,                   | March 26, 2004
|Gary L. Cox          | Chief Operating
 Officer and Director       |               
|                     |                                             |               
|/s/ Donald N. Black  | Director                                    | March 26, 2004
|Donald N. Black     
|                     |                                             |               
|/s/ Eric A.
 Young   | Director                                    | March 26, 2004
|Eric A. Young       
|                     |                                             |               
|/s/ Frank J.
 Cinatl | Vice President,
 Chief Financial Officer    | March 26, 2004
|Frank J. Cinatl,
 IV | and Director
(Principal Accounting Officer) |               

---

ABATIX CORP.
 AND SUBSIDIARY

Index to Consolidated Financial Statements

|Page                                                                                                    
|--------------------------------------------------------------------------------------------------------
|Independent
Auditors' Report                                                                            
|Financial
Statements:                                                                                   
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                            
|Consolidated Statements of Operations for the years ended
    December 31, 2003, 2002 and 2001          
|Consolidated Statements of Stockholders' Equity for the years
    ended December 31, 2003, 2002 and 2001
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2003, 2002 and 2001          
|Notes to Consolidated Financial Statements                                                              
|Financial
Statement Schedule:                                                                           
|II - Valuation and Qualifying Accounts for the years ended
        December 31, 2003, 2002 and 2001     

All other schedules have
been omitted as the required information is inapplicable.

---

INDEPENDENT
 AUDITORS' REPORT

The Board of Directors
and Stockholders
Abatix Corp.:

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

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

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Abatix Corp. and subsidiary as of
December 31, 2003 and 2002, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG LLP

Dallas, Texas
March 5, 2004

---

# ABATIX CORP.
 AND SUBSIDIARY

Consolidated
 Balance Sheets
 Years ended December 31, 2003 and 2002

|Assets                                               | 2003 | 2002       |  
|---------------------------------------------------- | ---- | ---------- | -
|Current assets:                                     
|Cash                                                 | $    | 176,078    | $
|Trade accounts receivable, net of allowance for     
|doubtful accounts of $277,830 in 2003               
|and $390,910 in 2002 (note 3)                        |      | 7,187,563  |  
|Inventories (note 3)                                 |      | 5,954,414  |  
|Prepaid
 expenses and other assets                   |      | 842,498    |  
|Refundable income taxes                              |      | 204,894    |  
|Deferred income taxes (note 4)                       |      | 251,522    |  
|Total current assets                                 |      | 14,616,969 |  
|Receivables
 from employees                          |      | -          |  
|Property
 and equipment, net (notes 2 and 3)         |      | 1,293,608  |  
|Deferred income taxes (note 4)                       |      | 350,748    |  
|Other assets                                         |      | 80,450     |  
|                                                     | $    | 16,341,775 | $
|                                                    
|Liabilities and Stockholders' Equity                
|                                                    
|Current liabilities:                                
|Notes payable (note 3)                               | $    | 4,523,290  | $
|Accounts payable                                     |      | 2,510,319  |  
|Accrued compensation                                 |      | 117,849    |  
|Other accrued expenses                               |      | 438,266    |  
|Total current liabilities                            |      | 7,589,724  |  
|                                                    
|Stockholders' equity (note 5):                      
|Preferred stock - $1 par value, 500,000 shares      
|authorized; none issued                              |      | -          |  
|Common stock - $.001 par value, 5,000,000 shares    
|authorized; issued 2,437,314 shares in 2003 and 2002 |      | 2,437      |  
|Additional paid-in capital                           |      | 2,574,560  |  
|Retained earnings                                    |      | 8,432,396  |  
|Treasury stock at cost, 726,166 common shares       
|in 2003 and 2002                                     |      | (2,257,342 | )
|Total stockholders' equity                           |      | 8,752,051  |  
|Commitments and
contingencies (note 9)               |      |            |  
|                                                     | $    | 16,341,775 | $
|                                                    

See accompanying notes to
consolidated financial statements.

---

# ABATIX CORP.
 AND SUBSIDIARY

Consolidated
 Statements of Operations
 Years ended December 31, 2003, 2002 and 2001

|                                               |             | 2003         |             | 2002         |             | 2001        
|---------------------------------------------- | ----------- | ------------ | ----------- | ------------ | ----------- | ------------
|Net sales                                      |             | $ 48,893,420 |             | $ 59,801,175 |             | $ 54,726,290
|Cost of sales                                  | 34,843,222  | 42,364,236   |             | 39,342,062  
|Gross profit                                   | 14,050,198  | 17,436,939   |             | 15,384,228  
|                                              
|Selling, general and administrative expenses   | (13,718,525 | )            | (14,999,741 | )            | (12,990,978 | )           
|Operating profit                               | 331,673     | 2,437,198    |             | 2,393,250   
|Other
 income (expense):                      
|Interest expense                               |             | (178,857     | )           | (230,605     | )           | (380,139    
|Other, net                                     | 773         |              | 2,212       |              | (27,349     | )           
|Earnings before
 income taxes                  | 153,589     | 2,208,805    |             | 1,985,762   
|                                              
|Income tax expense (note 4)                    | (92,398     | )            | (863,683    | )            | (779,411    | )           
|Earnings before
 cumulative effect of change  
|in
accounting principle                        | 61,191      |              | 1,345,122   |              | 1,206,351  
|Cumulative effect of change in accounting     
|principle, net of tax of $327,900 (note 1)     |             | -            |             | (491,941     | )           | -           
|Net earnings                                   |             | $ 61,191     |             | $ 853,181    |             | $ 1,206,351 
|                                              
|Basic and diluted earnings per common share:  
|Earnings before cumulative
effect of change in
|accounting
principle                           |             | $ .04        |             | $ .79        |             | $ .70       
|Cumulative effect of change in
 accounting    
|principle, net of tax  (note 1)                |             | -            |             | (.29         | )           | -           
|Net earnings                                   |             | $ .04        |             | $ .50        |             | $ .70       
|                                              
|Basic and diluted weighted average shares     
|outstanding                                    |             | 1,711,148    |             | 1,711,148    |             | 1,711,148   
|                                              
|                                              

See accompanying notes to
consolidated financial statements.

---

# ABATIX CORP.
 AND SUBSIDIARY

Consolidated
 Statements of Stockholders' Equity
 Years ended December 31, 2003, 2002 and 2001

|                             |  | Common Stock |         | Additional Paid-in |             | Retained |             | Treasury Stock | Total  
|---------------------------- |  | ------------ | ------- | ------------------ | ----------- | -------- | ----------- | -------------- | -------
|                             |  | Shares       | Amount  |                    | Capital     |          | Earnings    |                | Shares 
|Balance
at December 31, 2000 |  | 2,437,314    | $ 2,437 |                    | $ 2,574,560 |          | $ 6,311,673 |                | 726,166
|Net earnings                 |  | -            | -       |                    | -           |          | 1,206,351   |                | -      
|Balance at December 31, 2001 |  | 2,437,314    | 2,437   |                    | 2,574,560   |          | 7,518,024   |                | 726,166
|Net earnings                 |  | -            | -       |                    | -           |          | 853,181     |                | -      
|Balance at December 31, 2002 |  | 2,437,314    | 2,437   |                    | 2,574,560   |          | 8,371,205   |                | 726,166
|Net earnings                 |  | -            | -       |                    | -           |          | 61,191      |                | -      
|Balance at December 31, 2003 |  | 2,437,314    | $ 2,437 |                    | $ 2,574,560 |          | $ 8,432,396 |                | 726,166
|                            
|                            

See accompanying notes to consolidated
financial statements.

---

# ABATIX CORP.
 AND SUBSIDIARY

Consolidated
 Statements of Cash Flows
Years ended December 31, 2003, 2002 and 2001

|2003                                                | 2002 | 2001         
|--------------------------------------------------- | ---- | -------------
|Cash flows
from operating activities:              
|Net earnings                                        |      | $     61,191 
|Adjustments to reconcile net
 earnings to net      
|cash provided by (used in) operating activities:   
|Cumulative effect of change in accounting principle |      | -            
|Depreciation and amortization                       |      | 426,318      
|Deferred income taxes                               |      | (5,556       
|Provision for losses on receivables                 |      | 265,289      
|Provision for obsolescence of inventory             |      | 141,280      
|Loss/(gain) on disposal of assets                   |      | 2,354        
|Changes in operating assets and liabilities, net of
|business acquisitions:                             
|Receivables                                         |      | 939,448      
|Inventories                                         |      | 69,431       
|Prepaid expenses
and other assets                   |      | (56,308      
|Refundable income taxes                             |      | (182,481     
|Other assets,
 primarily deposits                   |      | (3,708       
|Accounts payable                                    |      | (27,528      
|Accrued
 expenses                                   |      | (382,954     
|Net cash provided by (used in) operating activities |      | 1,246,776    
|                                                   
|Cash flows
 from investing activities:             
|Purchase of property and equipment                  |      | (630,365     
|Proceeds from sale of property and equipment        |      | -            
|Advances to officers and employees                  |      | (4,671       
|Collection of advances to officers and
employees    |      | 5,946        
|Net cash used in investing activities               |      | (629,090     
|                                                   
|Cash flows
from financing activities:              
|Borrowings on notes payable                         |      | 14,347,800   
|Repayments on notes payable                         |      | (14,809,050  
|Net cash (used in) provided by financing activities |      | (461,250     
|                                                   
|Net increase in cash                                |      | 156,436      
|Cash at beginning of year                           |      | 19,642       
|Cash at end of
year                                 |      | $     176,078
|                                                   
|                                                   

See accompanying notes to
consolidated financial statements.

---

ABATIX CORP.
 AND SUBSIDIARY

Notes to Consolidated Financial Statements

(1)   
     Summary of Significant Accounting Policies

1. GeneralAbatix
Corp. (Abatix) and subsidiary (collectively, the
Company) market and distribute personal protection and safety
equipment and durable and nondurable supplies to the environmental industry, the
industrial safety industry and, combined with tools and tool supplies, the
construction industry. At December 31, 2003, the Company operated seven sales
and distribution centers in five states. Abatixs wholly-owned subsidiary,
International Enviroguard Systems, Inc. (IESI) imports disposable
protective clothing products sold through Abatixs distribution channels
and through other distributors.


The  preparation of financial
statements in conformity with generally  accepted  accounting  principles in the
United States of America  requires  management to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities,  the 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.

1. InventoriesInventories
consist of materials and equipment for resale and are stated at the lower of
cost or market. Cost is determined by the first-in, first-out method.

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

---

1. 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.

1. Revenue RecognitionRevenue
is recognized when the goods are shipped. Shipping fees billed to customers are
included in net sales. The costs related to these shipping fees, which are
included in selling, general and administrative expense, were $1,160,000,
$1,254,000 and $1,026,400 for the years ended December 31, 2003, 2002
and 2001, respectively.

1. Earnings per ShareBasic
earnings per share is calculated using the weighted average number of common
shares outstanding during each year, while diluted earnings per share includes
the effects of all dilutive potential common shares. As of December 31, 2003,
2002 and 2001, there were no dilutive securities outstanding. Basic earnings per
share and diluted earnings per share amounts were equal for the years ended
December 31, 2003, 2002, and 2001.

1. Statements of Cash
 FlowsFor
purposes of the Statements of Cash Flows, the Company considers all short-term
investments with original maturities of three months or less to be cash
equivalents. The Company held no cash equivalents at December 31, 2003 or 2002.

The
Company paid interest of $181,214, $235,235 and $393,602 in 2003, 2002, and
2001, respectively, and income taxes of $294,812, $1,029,199 and $524,176 in
2003, 2002, and 2001, respectively.

---

1. Income TaxesThe
Company accounts for income taxes using the asset and liability method. Under
this method the Company records deferred income taxes for the temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled. The resulting deferred tax liabilities and assets are
adjusted to reflect changes in tax laws or rates in the period that includes the
enactment date.

1. Goodwill
Goodwill
represents the excess of purchase price over the fair value of net assets
acquired. Amortization was provided in 2001 using the straight-line method over
estimated useful lives of three and ten years.


In
the first quarter of 2002, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards
(Statement) No. 142 Goodwill and Other Intangible
Assets. Statement No. 142 requires, among other things, the discontinuance
of goodwill amortization. In addition, the Statement includes provisions for
annual impairment testing of existing goodwill and other intangibles. Upon
adoption of Statement No. 142, the Company ceased amortizing goodwill and
performed an impairment review of its goodwill balance. Based on the review
performed, the Company recorded an impairment charge for the full goodwill
amount of $819,841, net of an income tax benefit of $327,900. The following
 pro forma  disclosure  presents earnings and earnings per share as if the
goodwill  requirements of Statement No. 142 had been adopted as of January
 1, 2001.

|Year Ended
December 31,                      
|---------------------------------------------
|                                             
|Reported net earnings                        
|Goodwill
amortization, net of tax            
|Cumulative
effect of change of accounting    
|principle, net of tax                        
|Adjusted net earnings                        
|Basic and
 diluted earnings per common share:
|Reported net earnings                        
|Goodwill
amortization, net of tax            
|Cumulative
 effect of change in
accounting   
|principle, net of
tax                        
|Adjusted net earnings                        
|                                             
|                                             

1. New Accounting
StandardsIn
June 2002, the FASB issued Statement No. 146 Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and supercedes Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The principal difference between this Statement and Issue
94-3 relates to its requirements for recognition of a liability for a cost
associated with an exit or disposal activity. This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an exit cost
as defined in Issue 94-3 was recognized at the date of an entitys
commitment to an exit plan. A fundamental conclusion reached by the Board in
this Statement is that an entitys commitment
to a plan, by itself, does not create a present obligation to others that meets
the definition of a liability. Therefore, this Statement eliminates the
definition and requirements for recognition of exit costs in Issue 94-3. This
Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of this Statement had no impact on the Company.



In December 2002, the FASB issued Statement No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123". This Statement amends Statement No. 123 and provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. Statement No. 148
also requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based compensation and the
effect of the method used on reported results. Statement No. 148 permits two
additional transition methods for entities that adopt the fair value based
method. These methods allow Companies to avoid the ramp-up effect arising from
prospective application of the fair value based method. This Statement is
effective for financial statements for fiscal years ending after December 15,
2002. The adoption of this Statement has had no impact on the Company.


On
January 1, 2003, the FASB issued Interpretation (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45
requires disclosure of guarantees. It also requires liability recognition for
the fair value of guarantees made after December 31, 2002. The adoption of
FIN 45 has had no impact on the Company.




In
May 2003, FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. Statement
No. 150 requires that certain instruments classified as part of
stockholders equity or between stockholders equity and liabilities
be classified as liabilities. In October 2003, the FASB deferred indefinitely a
provision of this Statement that would have required certain minority interests
in less than 100 percent owned subsidiaries to be classified as
liabilities. The Company has no instruments that would be affected by Statement
No. 150.





In
December 2003, the FASB issued FIN 46 (Revised December 2003),
Consolidation of Variable Interest Entities, an Interpretation of ARB
51, (FIN 46R). FIN 46R requires consolidation of
entities in which the Company is the primary beneficiary, despite not having
voting control. Likewise, it does not permit consolidation of entities in which
the Company has voting control but is not the primary beneficiary. The adoption
of FIN 46R has had no impact on the Company.

(2)    
  Property and Equipment

Property and equipment
consists of the following at December 31, 2003 and 2002:

|                                               | Estimated   |      |            |   |           
|---------------------------------------------- | ----------- | ---- | ---------- | - | ----------
|                                               | Useful Life | 2003 | 2002      
|Furniture and equipment                        | 3 - 8 years | $    | 2,694,718  | $ | 2,206,535 
|Transportation
equipment                       | 3 - 5 years |      | 468,628    |   | 468,166   
|Leasehold
 improvements                        | 3 - 5 years |      | 435,416    |   | 436,300   
|                                               |             |      | 3,598,762  |   | 3,111,001 
|Less
accumulated depreciation and amortization |             |      | (2,305,154 | ) | (2,019,086
|Net property
 and equipment                    |             | $    | 1,293,608  | $ | 1,091,915 

(3)   
   Notes Payable to Bank

At
December 31, 2003, the Company had two lines of credit with a bank. The working
capital facility allows the Company to borrow up to 80 percent of the book value
of eligible trade receivables plus the lesser of 40 percent of eligible
inventory or $2,000,000, up to a maximum of $8,000,000. Under this formula, the
Company had the ability to borrow $6,631,000 at December 31, 2003, of which
approximately $4,426,000 was used. A capital equipment facility provides for
individual borrowings, aggregating up to $500,000, at 80 percent of the
purchased equipments cost. At December 31, 2003, the Company had borrowed
approximately $86,000 on this facility. Each borrowing under the capital
equipment line is due on the earlier of demand or in terms ranging from
thirty-six to sixty monthly installments of principal and interest. Both credit
facilities are

---

payable
on demand and bear a variable rate of interest based on the prime rate. As of
December 31, 2003 and 2002, the Companys rate of interest on these
agreements was 3.75 percent and 4.00 percent, respectively. These credit
facilities are secured by accounts receivable, inventories and equipment.

The
Company has a note payable to Ford Motor Credit Corporation secured by one of
the Companys vehicles. The note is for 36 months and carries a 0% interest
rate. At December 31, 2003, the balance owed was approximately $11,000.

(4)   
   Income Taxes

Income tax expense
 (benefit) for the years ended December 31, 2003, 2002 and 2001 consists of:

|                         |  | 2003     |   |  | 2002      |   |  | 2001     
|------------------------ |  | -------- | - |  | --------- | - |  | ---------
|Current:                
|Federal                  |  | $ 68,324 |   |  | $ 703,221 |   |  | $ 494,613
|State                    |  | 29,630   |   |  | 138,757   |   |  | 100,967  
|Deferred:               
|Federal                  |  | (4,722   | ) |  | (260,266  | ) |  | 156,256  
|State                    |  | (834     | ) |  | (45,929   | ) |  | 27,575   
|Total income tax expense |  | $ 92,398 |   |  | $ 535,783 |   |  | $ 779,411

---

A
reconciliation of expected federal income tax expense (based on the U.S.
corporate income tax rate of 34 percent) to actual income tax expense for the
years ended December 31, 2003, 2002 and 2001 follows:

|                                                        |  | 2003     |  |  | 2002      |  |  | 2001     
|------------------------------------------------------- |  | -------- |  |  | --------- |  |  | ---------
|Expected income tax expense                             |  | $ 52,220 |  |  | $ 472,248 |  |  | $ 675,159
|State income
 taxes, net of related federal tax benefit |  | 19,006   |  |  | 45,651    |  |  | 94,214   
|Nondeductible
 meals, entertainment expense             |  | 16,780   |  |  | 14,892    |  |  | 15,609   
|Other                                                   |  | 4,392    |  |  | 2,992     |  |  | (5,571   
|Actual income
tax expense                               |  | $ 92,398 |  |  | $ 535,783 |  |  | $ 779,411

The
state income taxes in 2003 are higher than expected because Texas is not a
unitary state and excludes certain deductions in calculating the Texas franchise
tax.

The
tax effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities at December 31, 2003 and 2002 follow:

|                                                                       |  | 2003      |   | 2002     
|---------------------------------------------------------------------- |  | --------- | - | ---------
|Deferred
tax assets:                                                  
|Allowance for doubtful accounts                                        |  | $ 111,132 |   | $ 156,364
|Inventory                                                              |  | 269,199   |   | 159,411  
|Goodwill, due
to differences in amortization periods                   |  | 339,328   |   | 372,038  
|Property and equipment, principally due to
differences in depreciation |  | 11,420    |   | 8,506    
|Total gross deferred tax assets                                        |  | 731,079   |   | 696,319  
|Deferred tax
 liabilities - prepaid expenses                           |  | (128,809  | ) | (99,605  
|Net deferred
tax assets                                                |  | $ 602,270 |   | $ 596,714

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



---

(5)   
   Stockholders' Equity
The
Board of Directors authorized the acquisition of up to 726,500 shares of the
Companys common stock. The Company has acquired 726,166 shares that are
held as treasury shares.

(6)   
   Benefit Plans

The
Company has a 401(k) profit sharing plan, under which eligible employees may
request the Company deduct and contribute a portion of their compensation to the
plan. The Company, at its discretion, matches a portion of employee
contributions to the plan. Contributions by the Company to the 401(k) plan
aggregated $115,262, $115,617 and $50,046 during 2003, 2002 and 2001,
respectively.

(7)   
   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. Although
the note payable to Ford Motor Credit Corporation bears zero interest, the
current balance of the note approximates fair value because of its short term
and low interest rates.

(8)   
   Segment Information
Identification
of operating segments is based principally upon differences in the types and
distribution channel of products. The Companys reportable segments consist
of Abatix and IESI. The Abatix operating segment includes seven aggregated
branches, principally engaged in distributing environmental, safety, homeland
security and construction supplies to contractors and industrial manufacturing
facilities in the western half of the United States and the Companys
corporate operations. The IESI operating segment, which consists of the
Companys wholly-owned subsidiary, International Enviroguard Systems, Inc.,
is engaged in the wholesale distribution of disposable protective clothing to
companies similar to, and including, Abatix. The IESI operating segment
distributes products throughout the United States.

---

The
accounting policies are consistent in each operating segment as described in
Note 1 of the Notes to Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on operating profit
after a charge for the carrying value of inventory and accounts receivable.
Intersegment sales are at agreed upon pricing and intersegment profits are
eliminated in consolidation.

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

|Abatix                        | IESI | Totals      
|----------------------------- | ---- | ------------
|                             
|Sales from external customers |      | $ 46,932,862
|Intersegment
sales            |      | -           
|Interest expense              |      | 178,857     
|Depreciation and amortization |      | 424,915     
|Segment profit (loss)         |      | (38,545     
|Segment assets                |      | 14,900,767  
|Capital expenditures          |      | 612,415     
|                             

|2002                         
|-----------------------------
|Sales from external customers
|Intersegment
 sales          
|Interest
expense             
|Depreciation and amortization
|Segment profit               
|Segment assets               
|Capital expenditures         
|                             

|2001                         
|-----------------------------
|Sales from external customers
|Intersegment sales           
|Interest expense             
|Depreciation and amortization
|Segment profit               
|Segment assets               
|Capital expenditures         
|                             

---

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

|                                     |  | 2003         |   | 2002         |   | 2001        
|------------------------------------ |  | ------------ | - | ------------ | - | ------------
|Profit for reportable segments       |  | $ 349,898    |   | $ 2,425,064  |   | $ 2,414,721 
|Elimination of intersegment profits  |  | (18,225      | ) | 12,134       |   | (21,471     
|Earnings before income taxes         |  | $ 331,673    |   | $ 2,437,198  |   | $ 2,393,250 
|                                     | 
|Total assets for reportable segments |  | $ 16,419,811 |   | $ 17,210,318 |   | $ 16,538,650
|Elimination of intersegment assets   |  | (78,036      | ) | (58,002      | ) | (97,479     
|Total assets                         |  | $ 16,341,775 |   | $ 17,152,316 |   | $ 16,441,171

The
Companys sales, substantially all of which are on an unsecured credit
basis, are to various customers from its distribution centers in Texas,
California, Arizona, Washington and Nevada. The Company evaluates credit risks
on an individual basis before extending credit to its customers and it believes
the allowance for doubtful accounts adequately provides for loss on
uncollectible accounts. During 2003, 2002 and 2001, no single customer accounted
for more than 10 percent of net sales, although sales to environmental
contractors were approximately 47 percent, 55 percent and 49 percent of
consolidated net sales in 2003, 2002 and 2001, respectively. A reduction in
spending on environmental projects could significantly impact sales.

---

Although
no vendor accounted for more than 10 percent of purchases, two product classes
accounted for greater than 10 percent of sales. One product class accounted for
approximately 9 percent, 11 percent and 14 percent of net sales in 2003, 2002
and 2001, respectively. A major component of these products is petroleum.
Increases in oil prices or shortages in supply could significantly impact sales
and the Companys ability to supply its customers with certain products at
a reasonable price. The second product class accounted for 13 percent, 12
percent and 9 percent of net sales in 2003, 2002 and 2001, respectively. This
product class is comprised of many vendors, none of which control the market.

(9)   
   
Commitments and Contingencies
The
Company leases warehouse and office facilities under long-term noncancelable
operating leases expiring at various dates through July 2010. The following is a
schedule of future minimum lease payments under these leases as of
December 31, 2003:

| | 2004       |  |  | $ 1,201,086
| | ---------- |  |  | -----------
| | 2005       |  |  | 731,159    
| | 2006       |  |  | 445,105    
| | 2007       |  |  | 189,636    
| | 2008       |  |  | 117,732    
| | Thereafter |  |  | 235,464    
| |            |  |  | $ 2,920,182

Rental
expense under operating leases for the years ended December 31, 2003, 2002 and
2001 was $1,181,499, $1,199,089 and $1,016,209, respectively.

The
Company has employment agreements with two officers, both of which expire at the
end of 2004. The agreements provide for minimum aggregate cash compensation of
$432,000 in 2004.

---

(10)      Selected Quarterly Data
(unaudited)

|Quarter                                            
|---------------------------------------------------
|                                                   
|Net sales                                          
|Gross profit                                       
|Operating profit                                   
|Net
 earnings (loss)                               
|Basic and diluted
 earnings (loss) per common share
|                                                   

|2002                                                
|----------------------------------------------------
|Net sales                                           
|Gross profit                                        
|Operating profit                                    
|Net (loss) earnings                                 
|Basic and diluted (loss) earnings per common share b
|                                                    

aThe loss in the
fourth  quarter of 2003  primarily  relates to the decline in mold sales  during
2003  without a  corresponding  decline in costs.  When this decline in sales to
mold  remediation  customers was deemed  permanent,  certain costs were reduced,
however,  certain  other fixed  costs  could not be reduced.

b The loss for the
first quarter of 2002 relates to required  implementation  of FASB Statement No.
142. See Note 1 for further details.

---

Schedule II

ABATIX CORP.
 AND SUBSIDIARY

 Valuation and Qualifying Accounts
 Years ended December 31, 2003, 2002 and 2001

|                                 |  |  |            |  | Additions  |  |       |  |            |   |          
|-------------------------------- |  |  | ---------- |  | ---------- |  | ----- |  | ---------- | - | ---------
|                                 |  |  | Balance at |  | charged to |  |       |  |            |   | Balance  
|                                 |  |  | beginning  |  | costs and  |  |       |  |            |   | at end   
|                                 |  |  | of year    |  | expenses   |  | Other |  | Deductions |   | of year  
|Year ended December 31:         
|Allowance for Doubtful Accounts:
|2003                             |  |  | $ 390,910  |  | 265,289    |  | -     |  | 378,369    | A | $ 277,830
|2002                             |  |  | $ 447,037  |  | 134,911    |  | -     |  | 191,038    | A | $ 390,910
|2001                             |  |  | $ 559,963  |  | 79,536     |  | -     |  | 192,462    | A | $ 447,037
|                                
|Inventory
 Reserve:             
|2003                             |  |  | $ 398,528  |  | 141,280    |  | -     |  | 85,109     | B | $ 454,699
|2002                             |  |  | $ 391,925  |  | 147,941    |  | -     |  | 141,338    | B | $ 398,528
|2001                             |  |  | $ 288,409  |  | 168,878    |  | -     |  | 65,362     | B | $391,925 

A   
Represents the write-off of uncollectible accounts.
B    Represents the disposal of obsolete inventory.

S-1