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, 1996 Commission File Number - 1-10184

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

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

8311 Eastpoint Drive, Suite 400, Dallas, Texas                      75227
  (Address of principal executive officers)                      (Zip Code)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during  the  preceding  twelve  months  (or for  such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing for the past 90 days. Yes [X] No [ ]

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

1,988,564 shares of common stock,  $.001 par value,  were issued and outstanding
on February 28, 1997.

The  aggregate   market  value  of  the   Registrant's   common  stock  held  by
nonaffiliates of the Registrant as of the close of business on February 28, 1997
(an aggregate of 990,609 shares out of a total of 1,988,564  shares  outstanding
at that time) was  $3,281,392  computed by reference to the closing bid price of
$3 5/16 on February 28, 1997.

Portions of the  Registrant's  proxy  statement  for its 1997 annual  meeting of
stockholders are incorporated into Part III, herein, by this reference thereto.

<PAGE>

                                     PART I

Item 1. Business

(a)      Development of Business

Abatix  Environmental Corp.  ("Abatix" or the "Company") markets and distributes
personal protection and safety equipment, and durable and nondurable supplies to
the asbestos  and lead  abatement,  industrial  safety and  hazardous  materials
industries.  In addition to these products,  the Company also distributes  tools
and tool supplies to the  construction  industry.  During 1996, the Company sold
over 9,500 products consisting of equipment and supplies to over 4,500 customers
from its eight distribution  centers in Texas,  California,  Arizona,  Colorado,
Washington  and Nevada.  Currently,  approximately  68 percent of the  Company's
sales are to the asbestos and lead abatement  industries,  and  approximately 13
percent,  7 percent  and 12 percent of its sales are to the  industrial  safety,
construction  and  hazardous  materials  industries,  respectively.  The Company
believes a majority of its sales for the foreseeable  future will continue to be
made  to  asbestos  and  lead  abatement  contractors,  project  organizers  and
managers.  At present, the Company estimates its share of the asbestos abatement
supply market to be  approximately  15 to 20 percent in the  geographic  markets
served by the Company.

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

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

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

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

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

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

During 1994, because of increased  purchasing power, the Company,  through IESI,
began  to  import   certain   products  sold  through  not  only  the  Company's
distribution   channels,   but  other  distribution   companies  not  in  direct
competition  with  Abatix.  The  Company  will  continue  to review  the  direct
importation of products to obtain lower costs.

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

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

In  October  1995,  the  Company  expanded  its  Phoenix  location  to  initiate
distribution  services to the construction  tools supply  industry.  In December
1995, the newest facility opened in Las Vegas.  Although the Las Vegas operation
will handle the entire product line, its primary focus is the construction  tool
industry.

The  Company's  lease  agreement on the  building  that was occupied by both the
operations of IESI and the Corpus Christi branch  included an option to purchase
the  building.   In  March  1996,  the  Company   purchased  this  facility  and
simultaneously  sold the building to a third party. This transaction  terminated

<PAGE>
the Company's lease  obligation.  Concurrent with the sale, the Company reversed
the  remaining  reserves  resulting in the special  credit and the earnings from
discontinued operations in 1996.

The Company,  based on local market conditions,  intends to expand and diversify
the  revenue  base  by  developing  its  full  product  line  in all  locations.
Acquisitions and the hiring of experienced  personnel are two alternatives  that
will continue to be explored to accomplish this goal.

(b)      Financial Information About Industry Segments

The Company is considered to be in one industry segment for financial  reporting
purposes;  therefore,  no financial  information is presented regarding industry
segments.

(c)      Narrative Description of Business

Asbestos Abatement Industry Background

Between 1900 and the early 1970's,  asbestos was extensively used for insulation
and fireproofing in industrial,  commercial and governmental  facilities as well
as  private  residences  in  the  United  States  and  in  other  industrialized
countries.  It is estimated that in the United States,  approximately 20 percent
of  all   buildings,   excluding   residences  and  schools,   contain   friable
asbestos-containing   materials  that  are  brittle,  readily  crumble  and  are
susceptible  to  the  release  of  asbestos  dust.   Various  diseases  such  as
asbestosis,  lung cancer and  mesothelioma,  linked to the  exposure to airborne
asbestos,  and the presence of asbestos in insulation,  service applications and
finishing  materials  have given rise to the concern about exposure to asbestos.
Public  awareness of the health  hazards  posed by asbestos has increased as the
results of continuing  medical  studies have become  widely known.  Business and
other  publications  and  studies  have  listed  asbestos  abatement  as  one of
America's critical problems,  and legislation  previously introduced to the U.S.
Congress  refers to asbestos as "one of the most dangerous  substances  known to
science." A study  performed a few years ago,  predicted that as many as 225,000
Americans will die of asbestos  related  ailments  before the year 2000 and that
there are  currently  65,000  known cases of  asbestosis.  Litigation  involving
claimants exposed to asbestos has forced several firms to seek the protection of
the bankruptcy  courts, and the volume of pending claims has inundated state and
Federal  courts  throughout  the country thus  prompting  many  commentators  to
propose legislative solutions.

The United States Environmental Protection Agency ("EPA") estimated, in a survey
conducted  in 1984,  that  asbestos  is present  in 30  percent of the  nation's
110,000  schools and in 20 percent of the  nation's 3.6 million  government  and
commercial buildings.  Maintenance,  repair,  renovation or other activities can
disturb  asbestos-containing  material  and, if disturbed  or damaged,  asbestos
fibers  become  airborne  and  pose a  hazard  to  building  occupants  and  the
environment.

<PAGE>
Prompted by such concerns,  Congress,  in 1984, authorized the EPA to spend $800
million for asbestos  abatement  in schools  under the  Asbestos  School  Hazard
Abatement Act. In October 1986,  Congress passed the Asbestos  Hazard  Emergency
Response Act ("AHERA") which mandates inspections for asbestos,  the adoption of
asbestos abatement plans and the removal of asbestos from schools and facilities
scheduled for demolition.  In addition,  state and local  governments  have also
adopted asbestos-related regulations.

Notwithstanding  such  legislative  impetus and  continued  awareness  of health
related hazards associated with asbestos, the budgetary constraints and the lack
of improvement in the industrial  sectors continue to limit the number and scope
of asbestos  abatement  projects.  However,  as the U.S.  economy  improves  and
commercial  real  estate  demand  increases,  the Company  believes  the overall
industry will also improve on a limited basis.

Lead Abatement Industry Background

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

Many  asbestos  abatement  contractors  added lead  abatement  to their range of
services in an attempt to enter a market  considered  to be in its infancy.  The
asbestos abatement  contractors bring experience,  equipment and a trained labor
force,  working in a  regulatory  environment.  Although  the  Company  does not
anticipate these new rules to result in an increase of lead abatement  projects,
management is encouraged  by these new rules and their  opportunities.  Such new
rules  could  create  a  long-term   positive  impact  on  the  Company  through
expenditures  for equipment  and supplies to ensure the safe and proper  removal
and disposal of lead paint.

Safety and Hazardous Materials Industries Background

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

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

Construction Tools Supply Industry Background

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

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

Geographic Distribution of Business

The Company distributes over 9,500 personal protection,  safety, hazardous waste
remediation and  construction  tool products to over 4,500  customers  primarily
located in the Southwest, Midwest and Pacific Coast. Approximately 54 percent of
its  products  are sold to  asbestos  and lead  abatement  firms,  27 percent to
manufacturing,  chemical  and  petrochemical  firms,  7 percent to  construction
related firms, 6 percent to hazardous material contractors,  4 percent to resale
accounts  and 2 percent  to  government  agencies.  The  Company  considers  its
relationship with its customers to be excellent.

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

The Company  maintains  sales,  distribution  and warehouse  centers in Santa Fe
Springs and Hayward,  California,  Dallas and Houston, Texas, Phoenix,  Arizona,
Las Vegas, Nevada, Denver, Colorado, and Kent, Washington.  The Company expanded
its  distribution  operations  in 1996 by hiring  additional  sales and  support
personnel at certain existing locations.

<PAGE>
Equipment and Supplies

The Company buys products from  manufacturers  based on orders received from its
customers as well as anticipated needs based on prior buying patterns,  customer
inquiries  and  industry  experiences.  The Company  maintains  an  inventory of
disposable  products  and  commodities  as well as lower cost  equipment  items.
Approximately  85  percent  of the  Company's  sales  for  1996  and 1995 are of
disposable  items and commodity  products  which are sold to customers at prices
ranging  from under  $1.00 to $50.00.  The balance of sales is  attributable  to
items consisting of lower priced equipment  beginning at $20.00 to major product
assemblies  such as  decontamination  trailers  which  retail for  approximately
$15,000.  The Company  currently does not  manufacture or lease any products and
does not perform  any repairs  thereon.  The  Company  distributes  on a limited
basis, disposable items under its own private label.

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

Marketing

The Company's  marketing program is conducted by its sales  representatives,  as
well as by senior  management and the general  managers at each of its operating
facilities.  These sales  representatives  are  compensated  by a combination of
salary and/or  commission which is based upon negotiated  sales  standards.  The
Company's personnel participate in training programs at various universities and
training  schools which enhance the Company's  reputation and recognition of its
name, personnel and services.

Backlog

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

Inflation

The inflation  rate for the U.S.  economy has averaged  approximately  3 percent
annually over the past several years and is projected to be this range for 1997.
the  Company  believes  inflation  has not been a  substantial  concern nor will
inflation have a material impact to the Company's operations or profitability in
the near term, if inflation remains stable. The Company  anticipates it would be
able to pass along  increases in product  costs to its  customers in the form of
higher selling prices, thereby having no effect on product margins.

<PAGE>
Environmental Impact

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

Seasonality

Historically,  the  asbestos  abatement  services  and supply  business has been
seasonal as a result of the substantial number of abatement  contracts that were
performed in  educational  facilities  during the summer  months or during other
vacation periods.  The Company believes the  non-educational  or private sector,
which includes the industrial, commercial and residential markets, is an area of
potential  growth,  and that seasonality is not a major  characteristic of these
markets.  In addition to the private  sector  asbestos  business,  the Company's
expansion  of  the  hazardous  material   remediation,   industrial  safety  and
construction  tools  supply  markets  have  mitigated  any  seasonal  impacts of
government asbestos projects.

Government Regulation

As a  supplier  of  products  manufactured  by others to the  asbestos  and lead
abatement,  industrial safety and hazardous  materials  industry,  the Company's
operations  are not  substantially  affected  by  federal  laws and  regulations
including  those  promulgated by the EPA and OSHA.  Most of the  contractors and
other purchasers of the Company's  equipment and supplies are subject to various
government   regulations,   and  developments  in  legislation  and  regulations
affecting  manufacturers  and purchasers of the Company's  products could have a
substantial effect on the Company.

Competition

The asbestos and lead  abatement,  industrial  safety,  hazardous  materials and
construction tools supply businesses are highly  competitive.  These markets are
served by a limited  number of large national firms as well as many local firms,
none of who can be characterized as controlling the market. The Company competes
on the basis of price,  delivery,  credit  arrangements  and product variety and
quality.  The Company's business is not characterized by substantial  regulatory
or economic barriers to entry. Additional companies could enter the asbestos and
lead abatement,  industrial safety,  hazardous  materials and construction tools
supply  industries  and may have  greater  financial,  marketing  and  technical
resources than the Company

<PAGE>
Employees

As of February 28, 1997, the Company  employed a total of 83 full time employees
including 3 executive  officers,  8 managers,  43  administrative  and marketing
personnel  and  29  clerical  and  warehouse  personnel.  The  Company  believes
relations with its employees are excellent.

Item 2.  Description of Properties

The Company's headquarters are located in Dallas, Texas and occupy approximately
3,200 square feet of leased general office space in conjunction  with the Dallas
branch. This lease expires in July 1999. The eight distribution facilities lease
a total of 101,720  square feet of general  office and  warehouse  space.  These
facilities  range in size from 6,875 square feet to 18,680 with leases  expiring
between February 1997 and November 2000.

Item 3. Legal Proceedings

The Company was named as a defendant in a product liability lawsuit filed in the
Superior  Court of the  State of  California  for the  County  of Los  Angeles -
Central District  (Placido Alvarez vs. Abatix  Environmental  Corp., et al, Case
No.  BC133537).  The  Company  was also named as a third  party  defendant  in a
wrongful  death/product  liability  lawsuit  filed in the District  Court of the
State of Texas for the County of Bexar (Maribel  Flores vs. Olmos  Environmental
Services,  Inc., Nutec Industrial  Chemical,  Inc. and Walter J. Lyssy, Case No.
96-CI-12845).  In both lawsuits,  the Company has requested (1)  indemnification
under the manufacturer's  insurance and (2) legal  representation at the cost of
the  manufacturer.  At this time,  the Company does not  anticipate any material
impact on its financial statements as a result of these cases.

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

None

<PAGE>
                                     PART II

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

(a) The Company's  common stock is traded 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 quotations for the common stock for the periods  indicated.
These quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.

                                    Common Stock Price
                                ---------------------------
         1995                      High             Low
-----------------------         ----------      -----------
     First Quarter              $  3 3/8        $  2 1/16
    Second Quarter                 2 5/8           2 1/4
     Third Quarter                   4             2 5/8
    Fourth Quarter                 4 1/8           2 3/8

         1996         
----------------------
     First Quarter              $  4 1/2        $  3 3/8
    Second Quarter                 5 1/2           3 5/8
     Third Quarter                   5             2 7/8
    Fourth Quarter                 4 1/4           2 7/8

On February 28, 1997, the closing bid price for the common stock was $ 3 5/16.

Because of minimal trading activity since 1989, the Company  de-listed its stock
from the Boston Stock Exchange under the symbol "ABIX.B" on July 15, 1996.

(b) As of February 28, 1997, the approximate  number of holders of record of the
Company's common stock was 700.

<PAGE>
(c) The Company has never paid cash  dividends on its common stock.  The Company
presently  intends to retain any future earnings to finance the expansion of its
business or repay borrowings on its lines of credit and does not anticipate that
any cash  dividends  will be paid in the  foreseeable  future.  Future  dividend
policy will depend on the Company's earnings,  capital  requirements,  expansion
plans,  financial conditions and other relevant factors.  Although the Company's
notes payable to bank do not restrict the payment of dividends,  they do require
the Company  maintain a minimum net worth,  which  increases  each year  through
1997.  The notes payable to bank also require the Company  maintain  minimum net
income levels through 1997.

(d) Since November  1994,  the Board of Directors has  authorized  management to
purchase up to 476,500 shares of the Company's  common stock. As of December 31,
1996, the Company has purchased 392,750 shares.

(e) In October 1995, the Company  amended its  Certificate of  Incorporation  to
reduce  its  authorized  capital  from  5,000,000  shares to  500,000  shares of
preferred stock, and from 20,000,000 shares to 5,000,000 shares of common stock.

<PAGE>
Item 6. Selected Financial Data

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

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                           ----------------------------------------------------------------------
                                              1996           1995           1994           1993           1992
                                           ----------     ----------     ----------     ----------     ----------
<S>                                        <C>            <C>            <C>            <C>            <C>   
Selected Operating Results:
   Net sales                               $  33,067      $  27,632      $  25,982      $  19,085      $  11,362
   Gross profit                            $   9,202      $   7,977      $   7,164      $   5,354      $   3,053

   Earnings from continuing operations     $     734      $     813      $     580      $     283      $      28
   Earnings (loss) from discontinued
     operations, net of income taxes              22              -           (363)          (144)           (55)
   Cumulative effect of change in
     accounting principle                          -              -              -             20              -
                                           ----------     ----------     ----------     ----------     ----------
   Net earnings (loss)                     $     756      $     813      $     217      $     159      $     (27)
                                           ==========     ==========     ==========     ==========     ==========

Earnings (loss) per common and 
  common equivalent share:
   Earnings from continuing operations     $     .35      $     .36      $     .25      $     .12      $     .01
   Earnings (loss) from discontinued
     operations                                  .01              -           (.16)          (.06)          (.02)
   Cumulative effect of change in
     accounting principle                          -              -              -            .01              -       
                                           ----------     ----------     ----------     ----------     ----------
   Net earnings (loss)                     $     .36      $     .36      $     .09      $     .07      $    (.01)
                                           ==========     ==========     ==========     ==========     ==========

Weighted average common and common
   equivalent shares outstanding
                                               2,111          2,238          2,330          2,304          2,074
                                           ==========     ==========     ==========     ==========     ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                     As of December 31,
                                           ----------------------------------------------------------------------
                                              1996           1995           1994           1993           1992
                                           ----------     ----------     ----------     ----------     ----------
<S>                                        <C>            <C>            <C>            <C>            <C>
Selected Balance Sheet Data:
   Current assets                          $   9,722      $   8,230      $   7,426      $   6,605      $   4,055
   Current liabilities                         6,219          4,659          4,208          3,669          1,898
   Total assets                               10,678          8,977          8,184          7,341          4,959
   Total liabilities                           6,219          4,659          4,283          3,724          1,928
   Retained earnings                           3,244          2,488          1,674          1,457          1,299
   Stockholders' equity                        4,459          4,318          3,901          3,618          3,031
</TABLE>

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

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Results of Continuing Operations

Net sales from  continuing  operations  for the year  ended  December  31,  1996
increased 20 percent to $33,067,000  from  $27,632,000 in 1995 due to efforts to
further expand and diversify our customer base. The increase is also a result of
the  general  economic  recovery  in  the  geographic  regions  serviced  by the
Company's  facilities.  In addition,  1996 included a full year of operation for
the  Company's  Las  Vegas  facility.  The  improved  economic  conditions,   if
maintained,  should  provide the ability for the Company to grow its revenues in
1997.  These efforts also provide the  groundwork  for  broadening the Company's
revenues among its different  markets,  thereby decreasing its dependence on any
one of its markets.

Industry-wide  sales of  asbestos  abatement  products  are  expected  to remain
relatively flat in 1997. However,  the Company's sales and share of the asbestos
abatement market are expected to continue to increase  primarily  because of the
marketplace's recognition of the Company as a reliable and stable supplier.

Spending on asbestos  abatement declined in the U.S. over the past several years
due largely to the lack of full recovery in the commercial real estate industry.
Concerns raised about the comparative  health risks of removing asbestos and the
costs  related to such  removal,  as  opposed to leaving it in place,  also have
resulted  in the  delay or  cancellation  of some  projects.  The  Company  also
believes  that as the U.S.  economy  continues  its  expansion,  it will  have a
positive  impact on its  operations.  Notwithstanding  the above,  the  asbestos
abatement  industry  will  likely  diminish  over  time as  asbestos  containing
materials,  last used in construction  during 1977-1980,  ultimately are removed
from  schools,  office  buildings,  homes and  factories.  A 1992 estimate by an
industry  analyst  predicted that as much as $80 billion may be spent nationwide
over a 20 year period for asbestos  removal,  of which the Company  estimates $8
billion  relates to abatement  supplies.  Approximately  $2 billion in abatement
supplies will be spent during this 20 year period in the geographic areas served
by  the  Company's  eight  distribution  centers.  At  this  potential  rate  of
expenditure,  and at a presently  estimated 15 to 20 percent market share of the
asbestos  abatement markets served by the Company,  the current and intermediate
term  effects  of the  diminishing  market are not  expected  to have a material
adverse  impact on the Company based on its  historical  ability to increase its
share of this market.

Sales to the hazardous materials remediation, industrial safety and construction
tools supply markets are increasing both in absolute amounts and as a percentage
of revenues to the Company.  The Company  plans to expand its  customer  base in
these  areas  through  additional  salespeople  and  expects  these  revenues to
increase at a faster rate than the  asbestos  abatement  revenues.  In addition,

<PAGE>
using  the  Company's  financial  strength  to  expand  geographically,  it  has
diversified  its  geographical  risk  allowing  the Company to better  serve its
regional and national customers.

Gross  profit in 1996 of  $9,202,000  increased  15 percent from gross profit in
1995 of  $7,977,000  due to  increased  revenues.  As expected,  margins  varied
somewhat from location to location due to sales mix and local market conditions.
The  Company's  gross  profit  margins,  expressed  as a  percentage  of  sales,
decreased to 28 percent for 1996 compared to 29 percent for 1995, primarily as a
result of pressure from our low-price competition.  Overall margins are expected
to remain at their current  levels in 1997.  However,  as  experienced  in 1996,
competitive pressures could negatively impact any and all efforts by the Company
to improve or stabilize product margins.

Selling, general and administrative expenses for 1996 of $7,708,000 increased 22
percent  over  1995  expenses  of  $6,342,000.  The  increase  was  attributable
primarily to the higher employment costs as a result of additional marketing and
support personnel and a full year of operations in Las Vegas.  Selling,  general
and  administrative  expenses  were 23  percent of sales for both 1996 and 1995.
These expenses are expected to remain in their current range for 1997.

In the third quarter of 1995,  the Company  incurred a special charge of $80,000
to accrue  for  future  lease  commitments  resulting  from the  closure  of its
distribution  center in Corpus Christi,  Texas. The  noncancelable  lease was to
expire in September 1999. The Company's lease agreement on the building that was
occupied by both the operations of IESI and the Corpus  Christi branch  included
an option  enabling the Company to purchase  the  building.  In March 1996,  the
Company purchased this facility and simultaneously  sold the building to a third
party.  This  transaction  terminated the Company's lease obligation and enabled
the Company to reverse all remaining  reserves  resulting in the special  credit
and earnings from discontinued operations during 1996.

Other  expense,  net, of $356,000 in 1996 increased 43 percent over 1995 expense
of $248,000.  This  increase is  primarily  due to  increased  interest  expense
resulting from higher borrowings on the Company's working capital line of credit
to fund the growth in receivables  and inventory.  Since the Company's  lines of
credit  are tied to the  prime  rate,  any  increases  in the prime  rate  would
negatively affect the Company's earnings.

See note 5 to the consolidated  financial statements for a description of income
taxes.

The Company's  credit  policies  remain  stringent,  and  charge-offs  are below
industry experience.  Days of sales in net accounts receivable increased one day
from 1995 to 1996.  The Company  believes the reserve for  doubtful  accounts is
adequate.

Results of Discontinued Operations

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

<PAGE>
Net Results

Net  earnings in 1996 of $756,000 or $.36 per share  decreased  $57,000 from net
earnings of $813,000  or $.36 per share in 1995.  The 7 percent  decrease in net
earnings  is  due  to  lower  product  margins,  higher  selling,   general  and
administrative and interest  expenses.  This decline was partially offset by the
increased sales volume.

New Accounting Standards

In June of 1996, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial  Assets and  Extinguishments  of  Liabilities"  ("Statement  125").
Statement 125 is effective  for transfers and servicing of financial  assets and
extinguishments  of liabilities  occurring  after December 31, 1996 and is to be
applied prospectively. Management of the Company does not expect the adoption of
Statement 125 will have a material impact on the Company's  financial  position,
results of operations, or liquidity.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Results of Continuing Operations

Net sales from  continuing  operations  for the year  ended  December  31,  1995
increased 6 percent to  $27,632,000  from  $25,982,000  in 1994. The increase in
sales is due to  efforts  to  further  expand  and  diversify  revenues  without
sacrificing product margins. The increase is a result of recovery in the general
economic  conditions in the  southwest  and the expansion of business  along the
pacific coast region.

Gross  profit in 1995 of  $7,977,000  increased  11 percent from gross profit in
1994 of $7,164,000 due to increased revenues and increased margins. Gross profit
margins,  expressed as a percentage  of sales,  increased to 29 percent for 1995
compared to 28 percent for 1994.  As  expected,  margins  varied  somewhat  from
location  to  location  due to sales mixes and local  market  conditions.  Gross
margins on sales of construction  tools and industrial safety products typically
were higher than the Company's average margins,  while gross margins on sales of
asbestos abatement and hazardous material  remediation  products varied from one
market to the next and generally  were lower than those of the  Company's  other
products.

Selling,  general and administrative expenses for 1995 of $6,342,000 increased 7
percent  over  1994  expenses  of  $5,933,000.  The  increase  was  attributable
primarily to the higher  employment  costs as a result of additional  personnel.
Selling,  general and administrative  expenses were 23 percent of sales for both
1995 and 1994.

In the third quarter of 1995,  the Company  incurred a special charge of $80,000
to accrue  for  future  lease  commitments  resulting  from the  closure  of its

<PAGE>
distribution  center in Corpus Christi,  Texas. The  noncancelable  lease was to
expire in September 1999. The Company's lease agreement on the building that was
occupied by both the operations of IESI and the Corpus  Christi branch  included
an option enabling the Company to purchase the building.

Other expense, net, of $248,000 in 1995 decreased 4 percent over 1994 expense of
$258,000. This decrease is primarily due to decreased interest expense resulting
from lower borrowings on the Company's lines of credit.

See note 5 to the consolidated  financial statements for a description of income
taxes.

Results of Discontinued Operations

The Company  experienced  no impact  from  discontinued  operations  to its 1995
financial statements because an estimate of $139,000, net of taxes, was recorded
in  1994 to  accrue  for the  losses  from  the  discontinuance  of the  sorbent
manufacturing  business.  This  amount  included  an  estimate  of a  loss  from
operations  from  the  date  of  discontinuance  through  the  expected  date of
disposal. The Company ceased the sorbent manufacturing business in the summer of
1995.  The  remainder  of the  reserve  at  December  31,  1995,  related to the
obligation  under  a  noncancelable  operating  lease  which  was to  expire  in
September  1999.  The lease on this  facility,  which was shared with the Corpus
Christi branch, included a purchase option.

Net Results

Net earnings in 1995 of $813,000 or $.36 per share  increased  $596,000 from net
earnings of $217,000 or $.09 per share in 1994. The 275 percent  increase in net
earnings is due to the growth in revenues  and product  margins,  and the losses
recorded in 1994  related to the  discontinuance  of the  sorbent  manufacturing
business,  partially  offset by the charge in 1995 to close the  Corpus  Christi
branch office.

Liquidity and Capital Resources

The Company's working capital  requirements  historically result from the growth
of its accounts receivable and inventories, offset by increased accounts payable
and accrued expenses, associated with increases in sales volume and the addition
of new locations. Net cash used in operations during 1996 of $1,064,000 resulted
principally  from increases in accounts  receivable and inventory as a result of
the  revenue  growth.  Operating  cash  flow was also  impacted  by more  timely
payments  causing lower  accrued  expenses and  payables.  A non-cash  charge to
earnings  for  depreciation  of  $392,000  partially  offset  the  cash  used in
operations.

Cash  requirements for non-operating  activities during 1996 resulted  primarily
from  the  repurchase  of the  Company's  common  stock  totaling  $658,000  and
purchases  of property  and  equipment  amounting  to  $611,000.  The  equipment

<PAGE>
purchases  in 1996 were  primarily  computer and  telecommunications  equipment,
office furniture and delivery trucks.  The Company  repurchased its common stock
because  of the  Board  of  Directors'  belief  that it was  undervalued  in the
marketplace.  The Board of Directors has committed to continue  purchases in the
marketplace as long as the common stock remains  undervalued.  The repurchase of
common stock and purchases of property and  equipment  were funded by borrowings
on the Company's working lines of credit.

Cash  flow  from  operations  for the  entire  year of  1997 is  expected  to be
break-even,  although at any given point,  it may be negative.  Several  factors
contribute to this  expectation.  The rate of revenue growth in 1997 is expected
to be lower than 1996 and at a level that will not generate significant net cash
flows from operations.

Capital  expenditures  for 1997 are  expected  to be less than  1996,  since the
Company  significantly  improved  its  computer  system  in  1996.  The  Company
currently has no plans to expand  geographically in 1997,  however,  the Company
will  continue to search for  geographic  locations  that would  complement  the
existing  infrastructure.  If another  location  were to be opened in 1997,  the
Company would fund the startup expenses through its lines of credit. Anticipated
cash  requirements  in 1997 will be satisfied from  operations and borrowings on
the lines of credit, as required.

The  Company  maintains  a  $5,500,000  working  capital  line  of  credit  at a
commercial  lending  institution  that  allows  the  Company  to borrow up to 80
percent of the book value of eligible  trade  receivables  plus the lesser of 40
percent of eligible inventory or $1,500,000.  As of February 28, 1997, there are
advances  outstanding  under this credit  facility of  $4,117,000.  Based on the
borrowing  formula,  the  Company  had the  capacity  to  borrow  an  additional
$1,158,000  as of  February  28,  1997.  The Company  also  maintains a $550,000
capital equipment credit facility providing for borrowings at 80 percent of cost
on purchases. The advances outstanding under this credit facility as of February
28, 1997 were $181,000.  Both credit facilities are payable on demand and bear a
variable  rate of  interest  computed  at the prime  rate plus  one-half  of one
percent.

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

Except for the historical information contained herein, the matters set forth in
this  Form  10-K  are  forward  looking  and  involve  a  number  of  risks  and
uncertainties.  Among the  factors  that could  cause  actual  results to differ
materially are the following: federal funding of environmental related projects,
general  economic and  commercial  real estate  conditions in the local markets,
inability to pass on price increases to customers,  unavailability  of products,
strong competition and loss of key personnel.

<PAGE>
Item 8.  Consolidated Financial Statements and Supplementary Data

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

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

None

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

This Item 10 is incorporated  herein by reference from the Company's  definitive
Proxy  Statement to be filed with the  Securities  and Exchange  Commission  not
later than one hundred twenty (120) days after December 31, 1996.

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, 1996.

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, 1996.

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, 1996.

                                     PART IV

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

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

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

<PAGE>
(b)  Reports on Form 8-K

None

(c)  Exhibits

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

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

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

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

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

(3)(a)(1)       Certificate of Incorporation  (filed as Exhibit (3)(a)(1) to the
                Registration  Statement  on Form S-18,  filed  January 11, 1989;
                filed electronically as Exhibit 3(i)(a) to the Form 10-Q for the
                quarter ended September 30, 1995, filed on November 9, 1995).

(3)(a)(2)       Certificate of Amendment of Certificate of Incorporation  (filed
                as Exhibit (3)(a)(2) to the Registration Statement on Form S-18,
                filed January 11, 1989; filed  electronically as Exhibit 3(i)(b)
                to the Form 10-Q for the quarter ended September 30, 1995, filed
                on November 9, 1995).

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

(3)(b)          Bylaws (filed as Exhibit (3)(b) to the Registration Statement on
                Form S-18, filed January 11, 1989; filed electronically as 
                Exhibit 3(ii) to the Form 10-Q for the quarter ended September 
                30, 1995,filed on November 9, 1995).

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

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

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

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

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

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

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

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

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

(10)(a)(iv)     Employment Agreement with Terry W. Shaver effective
                January 1, 1997.*

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

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

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

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

(10)(b)(iv)     Employment Agreement with Gary L. Cox effective 
                January 1, 1997.*

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

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

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

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

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

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

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

(11)            Statement Re Computation of Per Share Earnings (Loss).*

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

(23)            Consent of Independent Auditors.*

(27)            Financial Data Schedule for the twelve months ended 
                December 31, 1996.*

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

<PAGE>
                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the undersigned,  thereunto duly authorized, on the 20th day of March,
1997.


                                 ABATIX ENVIRONMENTAL CORP.



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

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant,  and
in the capacities and on the date indicated.

Signatures            Title                                       Date


/s/ Terry W. Shaver   President, Chief Executive Officer          March 20, 1997
Terry W. Shaver       and Director (Principal Executive Officer)


/s/ Gary L. Cox       Executive Vice President,                   March 20, 1997
Gary L. Cox           Chief Operating Officer and Director


/s/ Lamont C. Laue    Director                                    March 20, 1997
Lamont C. Laue


/s/ Frank J. Cinatl   Vice President and Chief Financial          March 20, 1997
Frank J. Cinatl, IV   Officer (Principal Accounting Officer)

<PAGE>
                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                   Index to Consolidated Financial Statements

                                                                          Page
Independent Auditors' Report                                               F-2

Financial Statements:
  Consolidated Balance Sheets as of December 31, 1996 and 1995             F-3

  Consolidated Statements of Operations for the years ended
    December 31, 1996, 1995 and 1994                                       F-4

  Consolidated Statements of Stockholders' Equity for the years
    ended December 31, 1996, 1995 and 1994                                 F-5

  Consolidated Statements of Cash Flows for the years ended
    December 31, 1996, 1995 and 1994                                       F-6

  Notes to Consolidated Financial Statements                               F-7


Financial Statement Schedule:
  II - Valuation and Qualifying Accounts for the years ended
        December 31, 1996, 1995 and 1994                                   F-17

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

                                      F-1

<PAGE>
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Abatix Environmental Corp.:


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

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Abatix Environmental
Corp.  and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1996 in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.



                            /s/KPMG Peat Marwick LLP


Dallas, Texas
March 6, 1997

                                      F-2

<PAGE>
<TABLE>
<CAPTION>
                                ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                                       Consolidated Balance Sheets
                                        December 31, 1996 and 1995

                                                                                  1996               1995
                                                                             --------------     --------------
<S>                                                                          <C>                <C>   
                                  Assets        
Current assets:
   Cash                                                                      $     310,288      $     415,867
   Trade accounts receivable, net of allowance for doubtful accounts of
     $376,117 in 1996 and $336,486 in 1995 (note 4)                              5,295,849          4,370,595
   Inventories (note 4)                                                          3,440,557          3,088,276
   Refundable income taxes                                                         285,784                  -
   Prepaid expenses and other assets                                               285,791            218,187
   Deferred income taxes (note 5)                                                  103,723            136,719
                                                                             --------------     --------------
       Total current assets                                                      9,721,992          8,229,644

Receivables from officers and employees                                             76,347             70,577
Property and equipment, net (notes 3 and 4)                                        763,643            593,060
Deferred income taxes (note 5)                                                      80,168             39,657
Other assets                                                                        35,822             43,993
                                                                             --------------     --------------
                                                                             $  10,677,972      $   8,976,931
                                                                             ==============     ==============

                   Liabilities and Stockholders' Equity 
Current liabilities:
   Notes payable to bank (note 4)                                            $   4,786,935      $   2,631,828
   Accounts payable                                                                920,153          1,031,481
   Other accrued expenses                                                          406,271            845,782
   Accrued compensation                                                            106,090             93,249
   Net liabilities of discontinued operations (note 2)                                   -             56,813
                                                                             --------------     --------------
         Total current liabilities                                               6,219,449          4,659,153
                                                                             --------------     --------------

Stockholders' equity (note 6):
   Preferred stock - $1 par value, 500,000 shares authorized; none issued                -                  -
   Common stock - $.001 par value, 5,000,000 shares authorized; issued
     2,381,314 shares in 1996 and 2,366,314 shares in 1995                           2,381              2,366
   Additional paid-in capital                                                    2,407,603          2,365,118
   Retained earnings                                                             3,243,786          2,487,838
   Treasury stock at cost, 392,750 shares in 1996 and 207,100 shares in
     1995                                                                       (1,195,247)          (537,544)
                                                                             --------------     --------------
       Total stockholders' equity                                                4,458,523          4,317,778
                                                                             --------------     --------------

Commitments and contingencies (note 10)
                                                                             --------------     --------------
                                                                             $  10,677,972      $   8,976,931
                                                                             ==============     ==============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                                  Consolidated Statements of Operations
                               Years ended December 31, 1996, 1995 and 1994

                                                              1996               1995               1994
                                                         --------------     --------------     --------------
<S>                                                      <C>                <C>                <C>

Net sales                                                $  33,066,831      $  27,632,245      $  25,981,570
Cost of sales                                              (23,864,836)       (19,654,858)       (18,817,805)
                                                         --------------     --------------     --------------
       Gross profit                                          9,201,995          7,977,387          7,163,765

Selling, general and administrative expenses                (7,707,546)        (6,342,241)        (5,933,246)
Special credit (charge) (note 2)                                56,711            (80,000)                 -
                                                         --------------     --------------     --------------
       Earnings from operations                              1,551,160          1,555,146          1,230,519

Other income (expense):
   Interest income                                              19,840             15,311              6,540
   Interest expense                                           (359,712)          (258,079)          (271,046)
   Other, net                                                  (15,944)            (5,487)             6,880
                                                         --------------     --------------     --------------
       Earnings from continuing operations before
         income taxes                                        1,195,344          1,306,891            972,893

Income tax expense (note 5)                                   (460,941)          (493,514)          (392,684)
                                                         --------------     --------------     --------------
       Earnings from continuing operations                     734,403            813,377            580,209

Discontinued operations (note 2):
   Loss from operations of discontinued business  net
     of tax benefit of $125,522                                      -                  -           (223,746)
   Earnings (loss) on discontinuance of business, net
     of tax expense of $8,348 in 1996 and net of tax
     benefit of $71,857 in 1994                                 21,545                  -           (139,487)
                                                         --------------     --------------     --------------
       Net Earnings                                      $     755,948      $     813,377      $     216,976
                                                         ==============     ==============     ==============

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

Weighted average common and common equivalent shares
   outstanding                                               2,110,582          2,238,312          2,330,074
                                                         ==============     ==============     ==============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                             Consolidated Statements of Stockholders' Equity
                               Years ended December 31, 1996, 1995 and 1994

                                                          
                                     Common Stock          Additional                       Treasury Stock
                                -----------------------     Paid-in       Retained    -------------------------      Total
                                  Shares       Amount       Capital       Earnings      Shares        Amount         Equity
                                -----------   ---------   -----------   -----------   ----------   ------------   -----------
<S>                             <C>           <C>         <C>           <C>           <C>          <C>            <C>

Balance at December 31, 1993     2,275,918    $  2,276    $2,157,883    $1,457,485            -    $         -    $3,617,644
  
  Purchase of treasury stock             -           -             -             -       26,500        (55,598)      (55,598)

  Exercise of warrants              40,000          40       117,465             -            -              -       117,505

  Exercise of stock options          3,830           4         4,305             -            -              -         4,309

  Net earnings                           -           -             -       216,976            -              -       216,976
                                -----------   ---------   -----------   -----------   ----------   ------------   -----------
Balance at December 31, 1994     2,319,748       2,320     2,279,653     1,674,461       26,500        (55,598)    3,900,836

  Purchase of treasury stock             -           -             -             -      180,600       (481,946)     (481,946)
 
  Exercise of stock options         46,566          46        85,465             -            -              -        85,511

  Net earnings                           -           -             -       813,377            -              -       813,377  
                                -----------   ---------   -----------   -----------   ----------   ------------   -----------
Balance at December 31, 1995     2,366,314       2,366     2,365,118     2,487,838      207,100       (537,544)    4,317,778

  Purchase of treasury stock             -           -             -             -      185,650       (657,703)     (657,703)
  
  Exercise of stock options         15,000          15        42,485             -            -              -        42,500

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

See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
<TABLE>
<CAPTION>
                                ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                                  Consolidated Statements of Cash Flows
                               Years ended December 31, 1996, 1995 and 1994

                                                                 1996             1995           1994
                                                             ------------     ------------   ------------
<S>                                                          <C>              <C>            <C> 
Cash flows from operating activities:
   Net earnings                                              $   755,948    $   813,377    $   216,976
   Adjustments to reconcile net earnings to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                               392,019        337,309        307,625
     Deferred income taxes                                        (7,515)      (104,176)       (82,462)
     Loss (gain) on disposal of assets                            15,805        (11,615)        (6,695)
     Changes in assets and liabilities:  
       Receivables                                              (925,254)        58,258       (970,740)
       Inventories                                              (352,281)      (690,024)      (267,700)
       Refundable income taxes                                  (285,784)             -        236,236
       Prepaid expenses and other                                (62,604)        (7,602)       (69,867)
       Net liabilities of discontinued   
        operations (note 2)                                      (56,813)        91,627        336,853
       Accounts payable                                         (111,328)       238,819         (6,629)
       Accrued expenses                                         (426,670)       461,778        200,384
                                                             ------------   ------------   ------------
Net cash (used in) provided by operating activities           (1,064,477)     1,187,751       (106,019)
                                                             ------------   ------------   ------------

Cash flows from investing activities:
   Purchase of property and equipment                           (611,407)      (232,980)      (359,205)
   Proceeds from sale of property and equipment                   33,000         48,091         35,195
   Advances to officers and employees                            (51,270)       (50,604)        (9,125)
   Collection of advances to officers and employees               45,500         38,712         12,130
   Other assets, primarily deposits                                3,171        (22,057)        (2,000)
                                                             ------------   ------------   ------------
Net cash used in investing activities                           (581,006)      (218,838)      (323,005)
                                                             ------------   ------------   ------------

Cash flows from financing activities:
   Exercise of stock options                                      42,500         70,782        121,814
   Purchase of treasury stock                                   (657,703)      (481,946)       (55,598)
   Net borrowings (repayments) on notes payable to bank
                                                               2,155,107       (287,890)       344,888
   Principal payments on capital lease obligations                     -         (4,719)        (3,539)
                                                             ------------   ------------   ------------
Net cash provided by (used in) financing activities            1,539,904       (703,773)       407,565
                                                             ------------   ------------   ------------

Net (decrease) increase in cash                                 (105,579)       265,140        (21,459)
Cash at beginning of year                                        415,867        150,727        172,186
                                                             ------------   ------------   ------------
       Cash at end of year                                   $   310,288    $   415,867    $   150,727
                                                             ============   ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY
                   Notes to Consolidated Financial Statements

(1)      Summary of Significant Accounting Policies

         (a)  General

              Abatix    Environmental    Corp.    ("Abatix")    and   subsidiary
              (collectively,  the  "Company")  market  and  distribute  personal
              protection  and  safety   equipment  and  durable  and  nondurable
              supplies  predominantly,   based  on  revenues,  to  the  asbestos
              abatement  industry.  The Company also supplies  these products to
              the  industrial  safety and hazardous  materials  industries  and,
              combined  with  tools  and  tool  supplies,  to  the  construction
              industry.  At  December  31,  1996,  the  Company  operated  eight
              distribution  centers in six states. The Company  discontinued the
              sorbent  manufacturing  business of its wholly  owned  subsidiary,
              International  Enviroguard  Systems,  Inc.  ("IESI"),  a  Delaware
              corporation,   in  December  1994  (see  note  2).  However,  IESI
              continues to import disposable products sold primarily through the
              Company's distribution channels.

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

              The accompanying  consolidated  financial  statements  include the
              accounts of Abatix and IESI. All significant intercompany accounts
              and transactions have been eliminated in consolidation.

         (b)  Inventories

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

         (c)  Property and Equipment

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

         (d)  Revenue Recognition

              Revenue is recognized when the goods are shipped.
                                      
                                      F-7

<PAGE>
         (e)  Earnings (Loss) per Common and Common Equivalent Share

              Earnings (loss) per share is calculated using the weighted average
              number of common and,  when  dilutive,  common  equivalent  shares
              outstanding   during  each  year.  Common  equivalent  shares  are
              comprised of dilutive  stock options and  warrants.  Fully diluted
              earnings per share are not presented as the effect is immaterial.

         (f)  Statements of Cash Flows

              For  purposes  of  the  statements  of  cash  flows,  the  Company
              considers  all  highly  liquid  debt   instruments  with  original
              maturities  of three  months or less to be cash  equivalents.  The
              Company held no cash equivalents at December 31, 1996 or 1995.

              The Company paid  interest of $351,645,  $263,707 and $263,850 in
              1996, 1995 and 1994, respectively,  and income taxes of $736,554,
              $544,200 and $155,472 in 1996, 1995 and 1994, respectively.
             
              Significant non-cash  transactions include the transfer of accrued
              compensation  totaling $14,729 to additional  paid-in capital upon
              exercise of stock options during 1995.

         (g)  Income Taxes

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

         (h)  Long-Lived Assets

              On January 1, 1996,  the Company  adopted  Statement  of Financial
              Accounting  Standards No. 121,  "Accounting  for the Impairment of
              Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of."
              Adoption of this  Statement did not have a material  impact on the
              Company's financial position or results of operations.

                                      F-8

<PAGE>
         (i)  Stock Option Plan

              In October 1995, the Financial  Accounting  Standards Board issued
              Statement of Financial  Accounting  Standards No. 123, "Accounting
              for Stock-Based  Compensation"  ("Statement  123").  Statement 123
              allows  entities to continue to apply the provisions of Accounting
              Principles  Board  Opinion No. 25  ("Opinion  25") and provide pro
              forma net income and pro forma earnings per share  disclosures for
              employee  stock option  grants made in 1995 and future years as if
              the  fair-value-based  method  defined in  Statement  123 had been
              applied.  The  Company  has  elected  to  continue  to  apply  the
              provisions  of Opinion  25 and  provide  the pro forma  disclosure
              provisions of Statement 123.

(2)      Restructuring

         On  December  15,  1994,  the  Company   announced  a  formal  plan  to
         discontinue  the sorbent  manufacturing  business of IESI.  The Company
         recorded an estimated  loss on disposal of IESI at December 31, 1994 of
         $139,487,  net of taxes.  This  estimated  loss on  disposal  primarily
         included  costs  related  to  the  remaining  lease  obligation  on the
         facility, the writedown of fixed assets and inventory to net realizable
         value  and  the  estimated  loss  from  operations  up to the  expected
         disposal  date.  The sorbent  manufacturing  operations  were  actually
         discontinued  in  1995.  Except  for  the  remaining  lease  obligation
         discussed   below,   actual  costs  through   December  31,  1996  have
         approximated  management's  December  1994  estimates.  Sales  for  the
         discontinued  operations of IESI were $142,000 and $426,000 in 1995 and
         1994, respectively.

         In the third quarter of 1995, the Company  incurred a special charge of
         $80,000 to accrue  for  future  lease  commitments  resulting  from the
         closure  of its  distribution  center in  Corpus  Christi,  Texas.  The
         noncancelable  lease  was to expire in  September  1999.  Sales for the
         Corpus  Christi  branch were  $294,000  and  $140,000 in 1995 and 1994,
         respectively.  The Corpus Christi  branch also had operating  losses of
         $55,000 and $17,000 in 1995 and 1994, respectively.

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

                                      F-9

<PAGE>
(3)      Property and Equipment

         A summary of  property  and  equipment  at  December  31, 1996 and 1995
follows:

<TABLE>
<CAPTION>
                                              Estimated
                                             Useful Life          1996             1995
                                           --------------     ------------     ------------
<S>                                        <C>                <C>              <C>  
Furniture and equipment                     5 - 10 years      $ 1,592,568      $ 1,114,798
Transportation equipment                    3 - 5 years           324,676          311,734
Leasehold improvements                      3 - 5 years            54,609           53,650
                                                              ------------     ------------
                                                                1,971,853        1,480,182
Less accumulated depreciation and                                
   amortization                                                 1,208,210          887,122
                                                              ------------     ------------
Net property and equipment                                    $   763,643      $   593,060
                                                              ============     ============
</TABLE>

(4)      Notes Payable to Bank

         At December 31,  1996,  the Company had two lines of credit with a bank
         that are due on demand.  A working capital  facility allows the Company
         to  borrow  up to 80  percent  of the  book  value  of  eligible  trade
         receivables  plus the  lesser of 40 percent of  eligible  inventory  or
         $1,500,000,  up to a maximum of  $5,500,000.  Under this  formula,  the
         Company had the  capability to borrow  $5,108,000 at December 31, 1996,
         of which $4,596,000  ($2,425,000 in 1995) was used. A capital equipment
         facility  provides  for  individual   borrowings,   aggregating  up  to
         $550,000,  at 80 percent of the purchased equipment's cost. At December
         31, 1996, the Company had borrowed $191,000  ($206,000 in 1995) on this
         facility. Each borrowing under the capital equipment line is due on the
         earlier of demand or in terms ranging from  thirty-six to sixty monthly
         installments  of  principal  and  interest.  During  1995,  the Company
         negotiated  a one-half of one percent  reduction  in its rate,  thereby
         reducing the rate of interest on its  agreements to prime plus one-half
         of one percent. As of December 31, 1996 and 1995, the Company's rate of
         interest  on  these   agreements   was  8.75  percent  and  9  percent,
         respectively.   These  credit   facilities   are  secured  by  accounts
         receivable, inventory and equipment.

         The  Company's  notes  payable  to  bank  contain   certain   financial
         covenants.  These  notes  require  the  Company  maintain a minimum net
         worth, which increases each year through 1997, and maintain minimum net
         income levels through 1997.

                                      F-10

<PAGE>
(5)      Income Taxes

<TABLE>
<CAPTION>
         Income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 consists of:

                                               1996             1995             1994
                                           ------------     ------------     ------------
<S>                                        <C>              <C>              <C>    
Continuing Operations:
  Current:
     Federal                               $   413,759      $   542,681      $   320,141
     State                                      72,083           96,233           75,386
  Deferred:
     Federal                                   (23,775)        (120,240)          (2,318)
     State                                      (1,126)         (25,160)            (525)
                                           ------------     ------------     ------------
        Income tax expense related 
             to continuing operations          460,941          493,514          392,684

Discontinued operations:
  Current                                       (9,038)         (41,224)        (117,760)
  Deferred                                      17,386           41,224          (79,619)
                                           ------------     ------------     ------------
Total income tax expense                   $   469,289      $   493,514      $   195,305
                                           ============     ============     ============
</TABLE>

         A  reconciliation  of the normally  expected federal income tax expense
         relating to continuing  operations  based on the U.S.  corporate income
         tax rate of 34 percent to actual  expense for the years ended  December
         31, 1996, 1995 and 1994 follows:

<TABLE>
<CAPTION>
                                                1996             1995             1994
                                            ------------     ------------     ------------
<S>                                         <C>              <C>              <C>    
Expected income tax expense                 $   406,417      $   444,343      $   330,784
Nondeductible meals and entertainment
     expense                                     13,047            7,232            6,089
State income taxes, net of related federal
     tax benefit                                 46,832           46,908           49,408
Other                                            (5,355)          (4,969)           6,403
                                            ------------     ------------     ------------
Actual income tax expense relating to
     continuing operations                  $   460,941      $   493,514      $   392,684
                                            ============     ============     ============
</TABLE>

                                      F-11

<PAGE>
         The tax effects of temporary  differences that give rise to significant
         portions of the  deferred  tax assets and  liabilities  at December 31,
         1996 and 1995 follow:

<TABLE>
<CAPTION>
                                                      1996             1995
                                                  ------------     ------------
<S>                                               <C>              <C>  
Deferred tax assets:
     Allowance for doubtful accounts              $   143,830      $   132,188
     Accrual for loss on branch closure                     -           28,076
     Accrual for loss on the discontinued
         operations                                         -           20,393
     Property and equipment, principally due to
         differences in depreciation                   80,168           39,657
     Other                                             11,790                -
                                                  ------------     ------------
         Total gross deferred tax assets              235,788          220,314

Deferred tax liabilities:
     Prepaid expenses                                 (51,897)         (43,938)
                                                  ------------     ------------

         Net deferred tax asset                   $   183,891      $   176,376
                                                  ============     ============
</TABLE>

         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.

(6)      Stockholders' Equity

         In 1994, the Company adopted a stock option plan (the "Plan")  pursuant
         to which the  Company's  Board of Directors  may grant stock options to
         officers and key employees. The Plan authorized grants of up to 140,000
         shares of  authorized  but unissued  common  stock.  Stock  options are
         granted  with an exercise  price  equal to or greater  than the stock's
         fair market value at the date of grant.

         At December 31, 1996,  there were no  additional  shares  available for
         grant  under the Plan.  The per share  weighted  average  fair value of
         stock options  granted  during 1996 and 1995 was $1.14 and $1.24 on the
         date of grant  using the Black  Scholes  option-pricing  model with the
         following weighted-average  assumptions: 1996 - expected dividend yield
         of 0%,  risk-free  interest  rate of 7.0% and an expected  life ranging
         from one to two years;  1995 - expected  dividend  yield 0%,  risk-free
         interest rate of 7.0%, and an expected life of one year.

         The  Company  applied  Opinion No. 25 in  accounting  for its Plan and,
         accordingly,  no  compensation  cost has been  recognized for its stock
         options  in  the  financial  statements.  Had  the  Company  determined
         compensation  cost  based on the fair  value at the grant  date for its
         stock options under Statement 123, the effect on the Company's net 
         income and earnings per share for 1996 and 1995 would not be material.

                                      F-12

<PAGE>
         The options  outstanding  at December 31, 1996 expire at various  dates
         between  February  12, 1997 and  December  31,  1997 and have  exercise
         prices between $2.75 and $3.875.

                                                 Number of     Weighted
                                                  Shares        Average
                                                  Under        Price Per
                                                  Option         Share
                                                ----------     ----------
Outstanding at December 31, 1993                   25,396      $  0.50
     Granted                                      150,000         2.55
     Exercised                                     (3,830)        0.50
                                                ----------
Outstanding at December 31, 1994                  171,566         2.29
     Granted                                       20,000         2.63
     Exercised                                    (46,566)        1.52
                                                ----------
Outstanding at December 31, 1995                  145,000         2.71
     Granted                                        7,500         3.88
     Exercised                                    (15,000)        2.83
     Expired                                      (70,000)        2.46
                                                ----------
Outstanding at December 31, 1996                   67,500         3.06
                                                ==========

Shares exercisable:
     December 31, 1994                             51,566      $  1.52
     December 31, 1995                             75,000         2.50
     December 31, 1996                             67,500         3.06

                                      F-13

<PAGE>
         The Company granted to various consultants  warrants to purchase shares
         of common stock as part of an agreement to secure their services. These
         warrants were granted with exercise prices equal to or greater than the
         fair market  value of the  Company's  common stock on the date of grant
         and were exercisable immediately.  The activity of the warrants granted
         to various consultants is summarized in the following table:

                                                                 Weighted
                                                                 Average
                                                  Number of     Price Per
                                                   Shares         Share
                                                 ----------     ----------
Outstanding at December 31, 1993                    60,000      $  3.58
     Granted                                        50,000         2.63
     Exercised                                     (40,000)        2.94
                                                 ----------
Outstanding at December 31, 1994                    70,000         3.02
     Expired                                       (10,000)        3.50
     Canceled                                      (50,000)        2.63
                                                 ----------
Outstanding at December 31, 1995                    10,000         4.50
     Expired                                       (10,000)        4.50
                                                 ----------
Outstanding at December 31, 1996                         -            -
                                                 ==========

         The Board of Directors has approved the repurchase of 476,500 shares of
         the  Company's  common  stock  in the  open  market.  The  Company  has
         purchased  392,750  shares  of stock  since  November  1994,  including
         185,650 shares of stock during 1996.

(7)      Benefit Plans

         The Company has a 401(k) profit  sharing  plan.  Under the 401(k) plan,
         eligible  employees may request the Company to deduct and  contribute a
         portion  of their  salary to the plan.  The  Company  may also,  at its
         discretion,  match a portion  of  employee  contributions  to the plan.
         Contributions  by the  Company to the 401(k) plan  aggregated  $46,549,
         $51,358 and $25,657 during 1996, 1995 and 1994, respectively.

(8)      Major Customers and Credit Risk

         The  Company's  sales,  substantially  all of which are on an unsecured
         credit basis, are to various customers from its distribution centers in
         Texas,  California,  Arizona,  Colorado,  Washington  and  Nevada.  The
         Company  evaluates credit risks on an individual basis before extending
         credit to its  customers  and it believes  the  allowance  for doubtful
         accounts adequately provides for loss on uncollectible accounts.

                                      F-14

<PAGE>
         Through an  acquisition in the third quarter 1996, two of the Company's
         customers  in  the  asbestos   abatement  industry  came  under  common
         ownership,  although they both remain  separate legal  entities.  As of
         December  31,  1996 and 1995,  16% and 2%,  respectively,  of the trade
         accounts  receivable  before  allowances were  represented by these two
         customers.  Additionally, a change in management of the acquired entity
         delayed funding on a newly established banking line of credit,  thereby
         slowing payments to Abatix.  Currently,  the Company is working closely
         with its customers and anticipates payment of the entire balance. Sales
         to these two  companies  represented  less  than 4% of total  sales for
         1996.

         During 1996, 1995 and 1994, no single customer accounted for more than 
         10 percent of sales.

(9)      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.

(10)     Commitments and Contingencies

         The Company  leases  warehouse and office  facilities  under  long-term
         noncancelable  operating leases.  The following is a schedule of future
         minimum lease payments under these leases as of December 31, 1996:

                         1997                $ 420,763
                         1998                  365,166
                         1999                  153,665
                         2000                   43,220
                         Thereafter                  -
                                             ----------
                                             $ 982,814
                                             ==========

         Rental expense for continuing operations under operating leases for the
         years ended December 31, 1996, 1995 and 1994 was $491,374, $341,949 and
         $320,867,  respectively.  Rental  expense for  discontinued  operations
         under  operating  leases for the years ended December 31, 1995 and 1994
         was $16,479 and $35,600, respectively.

                                      F-15

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

                         1997                     $   527,700
                         1998                         440,100
                         1999                          81,725
                                                  ------------
                                                  $ 1,049,525
                                                  ============

         The Company was named as a defendant in two product liability lawsuits,
         one of which also asserts  wrongful death. The Company has requested in
         both  cases  (1)  indemnification  under  the  manufacturer's   product
         liability  insurance  and (2) legal  representation  at the cost of the
         manufacturer.  At this  time,  the  Company  does  not  anticipate  any
         material  impact on its  financial  statements as a result of either of
         these cases.

                                      F-16

<PAGE>
                                                                     Schedule II
                              
                    ABATIX ENVIRONMENTAL CORP. AND SUBSIDIARY

                        Valuation and Qualifying Accounts
                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                               Additions
                                                Balance at     charged to                    Balance at
                                                beginning      costs and                       at end
                                                 of year        expenses      Deductions       of year
                                                ----------     ----------     ----------     ----------
<S>                                             <C>            <C>            <C>            <C>  
Year ended December 31:
   Allowance for Doubtful Accounts:
       1996                                     $ 343,750        196,772        164,405 A      376,117
                                                ==========     ==========     ==========     ==========

       1995                                     $ 169,776        221,769         47,795 A      343,750 B
                                                ==========     ==========     ==========     ==========

       1994                                     $  87,811        205,460        123,495 A      169,776 B
                                                ==========     ==========     ==========     ==========

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

       1995                                     $ 193,344              -        139,294 D       54,050 E
                                                ==========     ==========     ==========     ==========

       1994                                     $       -        211,344 F       18,000 G      193,344
                                                ==========     ==========     ==========     ==========

   Reserve for Loss on Closure of Branch
     Location:
       1996                                     $  72,298              -         72,298 C            -
                                                ==========     ==========     ==========     ==========

       1995                                     $       -         80,000          7,702 H       72,298
                                                ==========     ==========     ==========     ==========
</TABLE>

A     Represents the write-off of uncollectible accounts.
B     Amounts  include  the  allowance  for  doubtful  accounts  related  to the
      Company's discontinued operations, which had balances of $7,264 and $6,543
      at December 31, 1995 and 1994, respectively.
C     Primarily  represents the reversal of the reserves due to the  termination
      of  the  Company's  lease  obligation.  See  Note  2 to  the  consolidated
      financial statements.
D     Represents  the losses from  operations,  the loss on sale of fixed assets
      and the payment of lease obligations.
E     The balance is included in the net liabilities of discontinued operations
      on the consolidated balance sheet.
F     Represents the reserve  established in December 1994 related to the  
      discontinued  operations.  See note 2 to
      the consolidated financial statements.
G     Cash  settlement  in  exchange  for  release  from the lease on one of the
      properties  related  to the  discontinued  operations.  See  note 2 to the
      consolidated financial statements.
H     Amount is primarily the payment of lease obligations.

                                      F-17