SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the Fiscal Year Ended June 30, 1999

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ___________ to ___________

     Commission File No. 01-06855

                         WORKSAFE INDUSTRIES INC.
         (Exact name of registrant as specified in its charter)

    NEW YORK                       3842                         11-1874010
(State or other          (Primary Standard Industrial        (I.R.S. Employer
jurisdiction of               Classification              Identification Number)
incorporation or               Code Number)
 organization)

       130 West 10th Street, Huntington Station, New York          11746
          (Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code (516) 427-1802

Securities registered pursuant to Section 12 (b) of the Act:

                                                         Name of Each Exchange
Title of Class                                           on Which Registered
--------------                                           ----------------------

a) $.12 par value common stock ("Common Stock")          Boston Stock Exchange

b) Class B  Redeemable  Common Stock  Purchase           Boston  Stock  Exchange
   Warrant ("Class B Warrant")(1)

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

a) $.12 par value common stock ("Common Stock")

b) Class B Redeemable Common Stock Purchase Warrant ("Class B Warrant")(1)

---------

(1) These warrants expired October 11, 1999.

Check whether the registrant  (1) has filed all reports  required to be filed by
Section 13 or 15 (d) of the  Exchange  Act of 1934 during the  preceding  twelve
(12) months (or for such shorter period that the registrant was required to file
such reports),  and (2) has been subject to the filing requirements for the past
ninety (90) days.

                         YES  _X_      NO ___

<PAGE>


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

State registrant's revenues for its most recent fiscal year.  $24,093,811.

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
registrant as of September 7, 1999 was approximately $1,636,000.  Non-affiliates
include all  shareholders  other than  officers,  directors and 5%  shareholders
known to registrant. Market value is based upon the price of the Common Stock of
the registrant as of the close of business on September 7, 1999 which was $1.063
per share as reported by NASDAQ.

As of September 7, 1999, the number of shares outstanding of the Common Stock of
the registrant was 1,686,579 shares.  The number of shares has been adjusted for
prior stock splits and estimated rounding for fractional shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III  which  includes  Item 10  (Directors  and  Executive  Officers  of the
Registrant),  Item 11 (Executive  Compensation),  Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related  Transactions)  will be incorporated in the registrant's proxy statement
to be filed within 120 days of June 30, 1999, and are incorporated herein by
reference thereto.

<PAGE>


                                     PART I

Item 1.  BUSINESS

     (a) General Development of Business.

     Worksafe  Industries Inc., formerly known as Eastco Industrial Safety Corp.
(referred  to  herein  as the  "registrant"  or  "Worksafe"),  is a  corporation
organized  and  existing  under the laws of the State of New York,  having  been
incorporated  on May 15, 1958. On December 17, 1998,  the name of the registrant
was changed to Worksafe Industries Inc.

     Worksafe,  through its wholly-owned  subsidiaries,  Disposable Safety Wear,
Inc.   ("Disposable"),   Safety  Wear  Corp.   ("Safety  Wear"),   Eastco  Glove
Technologies,  Inc.  ("Glove  Technologies"),  and Puerto Rico Safety  Equipment
Corporation ("Puerto Rico Safety Equipment")  manufactures industrial protective
clothing  products.  Worksafe's  Manufacturing  Operation  sells its products to
distributors. Use of products sold by Worksafe has in a large part resulted from
the adoption of OSHA and insurance industry standards.

     On  January  11,  1999,   Worksafe  sold  certain  of  the  assets  of  its
Distribution   Operation  and  the  Eastco  name  to  Arbill  Industries,   Inc.
("Arbill").  This division  specialized in the distribution of industrial safety
products  manufactured by third parties.  The  Distribution  Operation  served a
different  customer  base than the  Company's  Manufacturing  Division,  and was
managed as a separate  operating  unit with its own  identifiable  assets.  This
division had been experiencing operating losses over the past several years, and
this action was intended to enable the Company to better devote management's

<PAGE>


attention and resources to the core strategies of the  Manufacturing  Operation.
The sales price was approximately  $2,494,000, exclusive of related adjustments,
payments applicable to rent and payments for open accounts receivable.  Worksafe
generally agreed not to directly compete for 5 years with Arbill in the business
conducted  by  its  Distribution  Operation  prior  to  closing.  The  agreement
self-renews  yearly if Arbill purchases not less than 90% of the previous year's
sales as defined. The result of this transaction is that Worksafe has terminated
its  distribution  segment.  Reference  should be made to Worksafe's Form 8-K of
January 11, 1999, for a more detailed discussion of this transaction.

     (b) Financial Information About Industry Segments.

     Since the sale of the Distribution  Operation on January 11, 1999, Worksafe
is  organized  and  operates  in one  business  segment,  the  manufacturing  of
protective  clothing and safety products that are sold to  distributors  for end
use by manufacturers, utilities, hospitals and others.

     (c) Description of Business.

     The  following  is a  discussion  of both the  Manufacturing  Operation  of
Worksafe which is continuing and the Distribution Operation,  which Worksafe was
engaged in until the sale to Arbill in January, 1999.

     Manufacturing Operation

(i) Manufactured  products are sold under the  "Charkate/Worksafe",  "Charkate",
"Worksafe" and "Cover-Up" trade names. Worksafe, through Disposable, Safety Wear
and Puerto  Rico  Safety  Equipment,  manufactures  limited-use  (in prior years
referred  to  as  disposable)  and  reusable   industrial   protective  apparel.
Limited-use  protective  products include coveralls,  shirts,  pants,  headwear,
hoods, aprons, smocks, lab coats, hazardous material handler suits,  examination
gowns, sleeves, shoe covers and related items.  Limited-use clothing is designed
to protect the user from, among other things, splash, dirt,  contamination and a
wide range of  substances.  Limited-use  clothing  is made  primarily  of a spun
bonded polyolefin produced solely by E.I. Dupont De Nemours & Company ("Dupont")
under the trade name Tyvek(R).  Reusable industrial protective clothing consists
of items for the  protection  of various parts of the body which are designed to
shield the user from, among other things,  splash,  dirt,  contamination,  heat,
fire, cold and the outside environment.  Reusable products  manufactured include
coveralls,  gloves,  mitts, shirts,  thermal underwear,  sleeves,  coats, pants,
leggings,  spats,  bibs, safety vests and a variety of other kinds of protective
clothing and uniforms.

     Pursuant to an  acquisition  during April 1997,  Worksafe now  manufactures
protective knit gloves and sleeves which are sold by the Charkate/Worksafe  Knit
Glove  division.  These  products  are  generally  made  of  cotton  and  cotton
polyester, composite high tensile cut-resistant yarns, Kevlar (R) aramid fibers,
as well as steel, stainless steel and other high cut-resistant composite fibers.
The products may have a special  coating and are used to protect the  individual
from cuts and abrasions. These items are used in industries involving such items
as meat packing, glass handling, sheet metal, and automotive protection.

     Sales of manufactured limited-use clothing and related limited-use products
accounted for  approximately  67%, 75% and 63% of  Worksafe's  net sales for the
three fiscal years ended June 30, 1999, respectively.

     The  Manufacturing  Operation  and  warehousing  facilities  are located in
Puerto Rico,  Minnesota  and Alabama.  Worksafe also has  contracted  production
facilities in Mexico to sew materials already cut by Worksafe. The Manufacturing
Operation is directed primarily from Alabama and its sales are directed from New
York. Products are sold primarily in the United States and

<PAGE>


Puerto Rico.

     Worksafe    utilizes    catalogs,    telemarketing    and    its    website
(www.charkate.com) to aid in its sales efforts.  Worksafe does not engage in any
mail order business. Sales are primarily to independent distributors who sell to
end-users  comprised  of  industrial,   commercial  and  governmental  accounts.
Worksafe  considers  industrial  accounts  to  be  those  businesses  which  are
primarily based upon manufacturing and production, while commercial accounts are
considered to be service  businesses.  Worksafe  also  believes  that  standards
established by OSHA and the insurance industry have resulted in a need by others
to purchase  Worksafe's  products.  Sales are also promoted through trade shows,
mailings and advertising in trade magazines and directories.

(ii)  Worksafe has made no public  announcement  of, or made public  information
about,  any new product in this segment which would require the  investment of a
material amount of its assets or which otherwise is material.

(iii) Worksafe is not dependent upon any one vendor as a source of supply of raw
materials for its  Manufacturing  Operation  other than Dupont,  which  supplies
Worksafe  with  Tyvek(R),  which is used in  various  lines  of its  limited-use
products.  Products  utilizing Tyvek(R) accounted for approximately 67%, 75% and
63% of net sales of the Manufacturing Operation for the three fiscal years ended
June 30, 1999, respectively.  See also (iv) immediately below for reference to a
license  agreement  with Dupont which expires  January 31, 2000, and pursuant to
which Dupont supplies raw materials to Worksafe for its Manufacturing Operation.
Management  believes that its current  relationship with Dupont is satisfactory.
Management  expects that based upon its past relationship with Dupont,  although
there can be no assurances, that this Agreement will be extended. Loss of Dupont
as a supplier of Tyvek (R) would have a material  adverse  effect on  Worksafe's
operations.

(iv) Puerto Rico Safety Equipment is engaged in manufacturing in Puerto Rico and
was  granted  an  exemption  for  seventeen  (17) years  under the  Puerto  Rico
Industrial Tax Exemption Act of 1963 (the  "Industrial Tax Act") with respect to
Puerto Rico income  taxes on the  production  of such items as safety  clothing,
protective  sleeves,  coats,  pants, hoods and jackets for the period commencing
January 1, 1970.  On July 1, 1989,  Puerto Rico Safety  Equipment was granted an
extension of its exemption and had a 90% exemption from Puerto Rico income taxes
for the ten-year  period which ended June 30, 1999.  During this period,  Puerto
Rico Safety  Equipment had a 75% exemption from Puerto Rico  municipal  taxes on
its real and personal  property  utilized in its operations.  Puerto Rico Safety
Equipment is in the process of applying for an extension of this  exemption.  If
granted,  this exemption  would be for 10 years,  and would impose an income tax
rate of only 5% on the  taxable  income  and may  grant a 75%  exemption  on the
corresponding property tax, municipal tax and other taxes.

     Disposable has been granted a fifteen-year  exemption  under the Industrial
Tax Act with respect to Puerto Rico income taxes on its operations  covering the
production of limited-use clothing, and with respect to the property used in its
operations for the period  commencing June 4, 1977,  subject to the terms of the
grant.  This  exemption has been extended until June 30, 2006, on the basis of a
90% exemption on Puerto Rico income taxes and a 60% exemption on municipal taxes
on its real and personal property.

     As Puerto Rico tax  exemptions  are reduced or expire the registrant may be
required  to pay taxes on income  earned in Puerto  Rico.  Worksafe is unable to
predict the monetary impact of such exemptions being reduced or expiring.

     Puerto Rico Safety  Equipment and Disposable  have elected to apply Section
936 of the Internal  Revenue Code,  effective  July 1, 1979.  The  provisions of
Section 936 are effective until revoked by the registrant. If the conditions

<PAGE>


of Section 936(a)(2) are satisfied, the Section 936 credit equals the portion of
the United States income tax that is attributable to taxable income from sources
outside the United States derived from the active conduct of a trade or business
within a United States possession,  or the sale or exchange of substantially all
of the qualified possession source investment income.  Dividends payable by each
subsidiary to the  registrant  from  operations are entitled to a 100% dividends
received deduction, but are subject to a 10% withholding tax in Puerto Rico. The
Omnibus  Budget  Reconciliation  Act of 1993 (the  "Omnibus  Act")  imposed  new
limitations  on computing  the  Possession  Tax Credit under Section 936 for tax
years  beginning  after  1993.  The  registrant  made an  election in 1995 which
reduced  the  credit to 60% of the 1994 level and which  further  phased out the
credit by 5% in each subsequent  year to a maximum credit of 40% in 1998.  Since
the  credit  is a  function  of  future  earnings,  if any,  the  effect of such
limitations  cannot be determined at the present time. In addition,  the Omnibus
Act makes the 100%  dividends  received  deduction  subject  to the  Alternative
Minimum Tax  Calculation.  The Small Business Job Protection Act of 1996 further
limits the Possession Tax Credit for years beginning after 2001, with the credit
being  eliminated  for tax years  beginning  after 2005. No dividends  have been
declared on the aggregate undistributed earnings of Puerto Rico Safety Equipment
and Disposable (which through June 30, 1999, aggregates  approximately $666,000)
and none are  intended to be declared  because it is  management's  intention to
reinvest the earnings,  if any, from such  subsidiaries  indefinitely.  Worksafe
believes  that based upon  current  operations,  the Omnibus Act will not have a
material effect on it for the foreseeable future.

     Worksafe is a party to a Garment  Manufacturer & Seller  License  Agreement
with  Dupont,  which,  subject  to  termination  for cause at any time and other
specified  provisions,  continues in effect until  January 31, 2000.  Management
expects that based upon its past relationship with Dupont, although there can be
no assurances,  that this agreement will be extended. Pursuant to this agreement
Dupont provides nonwoven fabric under its trademark to the registrant.

(v) Worksafe does not consider its business to be seasonal.

(vi) Worksafe is required to maintain substantial  inventories (see Consolidated
Financial  Statements) in order to meet the immediate  shipping  requirements of
its customers,  who require  products on short notice and who do not maintain an
inventory of the same.  Worksafe  believes that other companies in this industry
also maintain substantial inventories.

(vii) Worksafe is not dependent upon any single  customer or several  customers,
the  loss  of any  one or more of whom  would  have  an  adverse  effect  on its
business. No one customer accounts for more than 10% of net sales.

(viii) The dollar amount of backlog of orders  estimated and believed to be firm
with respect to the Manufacturing  Operation was approximately  $1,500,000 as of
June 30, 1999,  compared to  approximately  $972,000 as of June 30, 1998. All of
the backlog as of June 30,  1999,  is  expected to be filled  during the current
fiscal year.

(ix) No material portion of the business of Worksafe is subject to renegotiation
of profits or  termination of contracts or  subcontracts  at the election of the
government.

(x) Worksafe  faces  competition  in all of its product  markets from larger and
more established  companies that have greater financial,  managerial,  sales and
technical  resources.  Certain markets for Worksafe's  products are dominated by
these companies.  While larger competitors may be able to benefit from economies
of scale and  introduce  new products  that compete  with  Worksafe's  products,
management is accustomed to such competition,  and believes Worksafe will remain
competitive with such companies. Worksafe's major competitors in price and in

<PAGE>


service  for  its   Manufacturing   Operation  are  Kappler  Inc.  and  Lakeland
Industries,  Inc. in limited-use clothing sales, and Red Kap, a subsidiary of VF
Industries Inc.,  Topps Mfg. Co. and Workrite  Uniform Co. in reusable  clothing
sales.  Primary  competitors  in  glove  manufacturing  are  Chicago  Protective
Apparel, Inc., Steel Grip, Inc., and Ansell Golden Needles, Inc.

(xi) During the last three fiscal years, the registrant has not spent a material
amount on  research  and  development  relating to the  development  or research
activities of new products,  services or  techniques or for the  improvement  of
existing products, services or techniques.

(xii) Compliance with Federal, State and local environmental laws is expected to
have no material effect upon capital expenditures,  earnings and the competitive
position of the registrant.  Worksafe's  manufacturing facilities are subject to
regulation and inspection  standards  established by OSHA.  Such facilities have
not been  inspected for compliance  with OSHA.  Although  Worksafe's  management
believes it is in material compliance with required  standards,  there can be no
assurance that any inspection will not reveal that Worksafe has failed to comply
with OSHA and that,  as a  result,  the  registrant  may be  required  to expend
material sums to assure compliance with OSHA regulations.

(xiii) The total number of employees  employed by the  registrant as of June 30,
1999, was approximately 235.

     Discontinued Operation

     The registrant,  until the sale to Arbill on January 11, 1999,  distributed
industrial safety products  manufactured by third parties.  Products distributed
included hard hats, protective clothing,  gloves, glasses, ear muffs, ear plugs,
respirators,  goggles, face shields,  rainwear,  protective footwear,  first-aid
kits, monitoring devices,  signs and related products.  These products were sold
to   industry   and  service   businesses,   including   utilities,   hospitals,
pharmaceutical plants, and companies engaged in hazardous materials abatement.

     This  segment  supplied a variety of items  which  could be used during the
removal  and/or  encapsulation  of  hazardous  materials  in  office  buildings,
chemical plants,  refineries,  power-generating  plants,  schools and hospitals.
Abatement products sold included items made by other companies, such as negative
air machines,  respirators,  air  filtration  equipment,  vacuums,  polybags and
sheetings,  decontamination  showers,  signs, tools, pumps, sprayers and related
equipment.  The  registrant  did not engage in the removal or  encapsulation  of
hazardous materials. Sales of these products accounted for approximately 7%, 12%
and 13% of Worksafe's  net sales for the three fiscal years ended June 30, 1999,
respectively.  The  foregoing  percentages  do not  include  abatement  products
manufactured by the registrant.

     Pursuant  to the sale  agreement,  Worksafe  has  generally  agreed  not to
compete  with  Arbill  for a period  of 5 years  in the  business  conducted  by
Worksafe's Distribution division. There are certain exceptions in this agreement
which  includes the right to sell  end-users  safety  products  manufactured  by
Worksafe if Arbill does not purchase  safety products from Worksafe equal to not
less than 90% of the previous  year's  sales as defined.  Arbill is presently in
compliance with this provision.

     (d) Financial  Information About Foreign and Domestic Operations and Export
Sales.

     All sales of the registrant's  products are primarily in the United States,
inclusive of Puerto Rico.

<PAGE>


Item 2.  PROPERTIES

     The following properties are material to the business of Worksafe:

     The  executive  offices of Worksafe  are  located at 130 West 10th  Street,
Huntington  Station,  New  York  and are  owned  by  Worksafe  (the  "Huntington
Property"). The Huntington Property contains approximately 30,000 square feet of
which 25,000 square feet are being sublet to non-affiliates. The remaining 5,000
square feet are being used by Worksafe for its  executive  offices and for sales
functions.  At June 30, 1999,  the premises  were subject to a first real estate
mortgage  made  in  1992,  payable  to 130  West  10th  Street  Associates,  LLC
("Associates")  of which  approximately  $377,000  was then  due.  The  wives of
Messrs.  Anthony Towell, an executive  officer and director,  and Alan Densen, a
director,  are members of Associates.  Charles Holzberg,  a director,  is also a
member of Associates.

     The registrant's  wholly-owned subsidiary,  Disposable,  leases a building,
which is used for  manufacturing  and  warehousing,  consisting of approximately
45,000  square feet in  Aguadilla,  Puerto Rico from the Puerto Rico  Industrial
Development Company. A lease was entered into for these premises on February 21,
1995,  effective for the ten-year period commencing  September 1, 1993. Rent for
the  twelve-month  period  ending  August 31,  1999 was at the  monthly  rate of
$9,315, and escalates to $13,041 in the final year of the lease.

     The registrant's wholly-owned subsidiary, Safety Wear, leases approximately
40,000  square feet in Decatur,  Alabama.  These  premises  are utilized for the
cutting and  warehousing of coveralls and other  limited-use  products.  Rent is
payable at $8,450 per month on a month-to-month  basis.  Should these facilities
not be available in the future, Worksafe believes that alternative sites will be
readily available at a comparative cost.

     The  registrant's  wholly-owned  subsidiary,  Glove  Technologies,   leases
approximately 11,000 square feet in Chaska, Minnesota. The premises are utilized
in  connection  with the  manufacturing  of  protective  knit gloves and related
operations.  This lease terminates on December 31, 1999, at which point Worksafe
may renew or relocate this  facility.  Rent is payable at the rate of $7,500 per
month.

<PAGE>


Item 3.   LEGAL PROCEEDINGS

     In the past, the registrant  used asbestos in the manufacture of certain of
its products.  Such use was terminated by the registrant in the  mid-1980's.  It
has been alleged that asbestos is a cause of cancer,  asbestosis,  mesothelioma,
and other related  diseases,  the symptoms of which may not appear for twenty or
more years.  Since the early  1980's,  numerous  lawsuits  have been  instituted
against the registrant by persons who have been exposed to asbestos and asbestos
products.

     As of June 30, 1999, Worksafe estimates that it is a party to approximately
3,800 cases with respect to exposure to asbestos involving  approximately  8,500
plaintiffs.  Most of these  cases  include  Puerto Rico  Safety  Equipment  as a
defendant.  Reference  is made to Exhibit  99.05 of the Form 10-K for the fiscal
year ended June 30, 1998,  which is made a part hereof and are  incorporated  by
reference herein for a schedule of the asbestos cases pending as of that date.

<PAGE>


Reference is also made to exhibits 99.05.01,  99.06.0 and 99.06.3 which are made
a part hereof and are incorporated by reference, respectively, to the Forms 10-Q
for the quarters  ended  September  30, 1998,  December 31, 1998,  and March 31,
1999, and Exhibit 99.12 for asbestos cases instituted  during the quarter ending
June 30, 1999, all as identified in Item 14 hereof.

     To date,  all of the actions  against the  registrant  have been brought by
non-employees  of the registrant and are based upon personal injury claims.  The
pending actions are in the Supreme Court of the State of New York, County of New
York; Superior Court of New Jersey, Middlesex County, Law Division; the Court of
Common Pleas of Luzerne County,  Trial Division of Pennsylvania and the Court of
Common Pleas of Allegheny County, Civil Division of Pennsylvania.  The number of
first-party plaintiffs referred to throughout this Form 10-K include husband and
wives, in most instances.  For the most part,  settlements have usually involved
one settlement for both spouses. The actions,  with the exception of one pending
action,  involve a multitude of defendants.  The complaints  allege  exposure to
asbestos and asbestos  products over various  periods of time. In general,  each
action  seeks  varying  amounts  of  damages,  usually  unlimited,  or for  each
plaintiff as high as $10,000,000  for  compensatory  damages and $20,000,000 for
punitive  damages.  The  registrant  may become a party to  additional  asbestos
actions in the future.

     From 1981 through  June 30, 1999,  Worksafe  estimates  that  approximately
4,450 actions on behalf of approximately 16,000 first-party plaintiffs have been
instituted against it concerning asbestos-related claims, and that approximately
650  actions  and  the  claims  of  approximately  7,500  plaintiffs  have  been
terminated against the registrant.  During fiscal 1999, the registrant estimates
approximately  2,700 actions on behalf of  approximately  5,300  plaintiffs were
instituted  against it and  approximately 10 cases involving 327 plaintiffs were
settled or discontinued against the registrant. The registrant estimates that as
of June 30, 1999, with the exception of defense costs, a total of  approximately
$1,800,000  has been paid,  or agreed to be paid,  in  settlements  to date with
regard to the  terminated  actions on behalf of Worksafe  (inclusive  of actions
against Puerto Rico Safety Equipment) of which all but approximately $38,000 has
been paid by the registrant's  insurance  carriers.  The foregoing is based upon
information  available to the  registrant  to date.  Through June 30, 1999,  the
registrant  has paid less than  $40,000 for legal and  defense  costs to counsel
appointed by the  insurance  carriers to defend it. Past results of  settlements
and defense  costs are not  necessarily  indicative  of future  settlements  and
defense costs, which the registrant is unable to predict.

     The  registrant  believes  that it maintained  various  policies of primary
insurance in different  amounts  which  provide  coverage to the extent of their
terms for asbestos-made, product-related personal injuries for the periods April
1, 1968,  to April 1, 1969,  and March 11,  1971,  to  November  27,  1985.  The
policies  range in amounts  from  $50,000 to  $1,000,000.  The  registrant  also
believes  that since August 10, 1972, to on or about August 11, 1986, it has had
various  policies for excess coverage to the extent of their terms applicable to
asbestos  claims.  These  policies range in amounts from $500,000 to $10,000,000
for excess coverage.  There are gaps of  approximately  six weeks in the primary
coverage  between  March 11,  1971,  to November  27,  1985,  and  approximately
thirty-six months in the excess coverage between August 10, 1972, and August 11,
1986,  and an  additional  period of  approximately  thirteen  months for excess
coverage  insurance  companies  in  liquidation  where  there is likely to be no
coverage.  Reference  is made to Exhibits  99.06 and 99.07 for a schedule of the
foregoing  insurance  policies.  The policies of insurance set forth on Exhibits
99.06 and 99.07 are not applicable to all of the subsidiaries of the registrant,
which have varying coverage,  and such subsidiaries may also be without coverage
for various times of their doing business.  Not all of these policies are in the
possession of Worksafe. The foregoing exhibits are incorporated by reference and
made a part hereof as referred to in Item 14 of this Form 10-K.

<PAGE>


     During fiscal 1994, the registrant  reached a settlement  pertaining to all
pending and future cases against it in the State of New York brought by one firm
of plaintiffs'  attorneys.  The settlement  does not apply to Puerto Rico Safety
Equipment  and is only  applicable to cases brought by the same law firm against
the  registrant  in the State of New York.  The  registrant  is to be  dismissed
without any payment in cases not  involving  any exposure to a power  generating
station  in the  State of New York  ("Powerhouse").  Where  there is  Powerhouse
exposure,  a payment of $100 is to be made for each alleged  non-malignant  case
and $300 for each malignant case. Where plaintiffs consist of two spouses,  such
is deemed one case.  Payment is to await appropriate  documentation of exposure,
releases from the plaintiffs  and the agreement of each plaintiff  whose case is
settled.  A copy of the letters  between  counsel for the registrant and counsel
for plaintiffs' attorneys setting forth this settlement is designated as Exhibit
99.11.

     An agreement  between the  registrant  and its primary  insurance  carriers
dated  March  26,  1990,   became   effective  June  26,  1990  (the  "Indemnity
Agreement"). The registrant entered into the Indemnity Agreement in an effort to
resolve  uncertainties  as to its insurance  coverage  which will cover asbestos
claims  against  the parent  company  where any  exposure to asbestos is alleged
during the period 1971 to 1985, inclusive.  Further, the registrant is obligated
to share in the payment of  asbestos-related  claims against it. Pursuant to the
Indemnity  Agreement,  the  registrant is obligated to pay 12% of all attorneys'
fees incurred on its behalf and 17% of indemnity  costs (which include  judgment
and  settlement  amounts).  The  balance  of these  costs  are to be paid by the
insurance  carriers  which are party to the Indemnity  Agreement.  The Indemnity
Agreement is subject to the policy limitations of each insurance policy, and may
be  terminated  at any time upon ninety (90) days notice by any of the  parties,
provided that  termination  may not be effective as to any asbestos  action that
has already been placed on the trial  calendar,  unless it has a scheduled trial
date more than twelve (12)  months  from the date the notice of  termination  is
given.  The registrant is presently aware of two cases on the trial calendar.  A
copy of the Indemnity  Agreement  dated March 26, 1990, is designated as Exhibit
99.09,  made a part hereof and is incorporated by reference as set forth in Item
14.

     Effective  during  May  1991,  the  registrant  entered  into a  Settlement
Agreement and Release with Mount Vernon Fire Insurance Company ("Mount Vernon").
Pursuant to this Settlement  Agreement,  which is designated  Exhibit 99.10, the
registrant  discontinued  its action against Mount Vernon,  which provided that,
subject to the terms of the Settlement  Agreement,  Mount Vernon would reimburse
the registrant  (where  applicable)  for 6.25% of attorneys' fees (52.08% of the
registrant's  12% share  referred to in the Indemnity  Agreement in the previous
paragraph) and 6.25% of indemnification  costs (36.76% of registrant's 17% share
referred  to  in  the  Indemnity  Agreement  in  the  previous  paragraph).  The
Settlement  Agreement  is not  applicable  to any asbestos  actions  against the
registrant where no exposure is alleged to products  manufactured or distributed
by the  registrant  between  April 1, 1968,  and April 1, 1969.  The  Settlement
Agreement may be terminated at any time upon 90 days notice,  but such notice is
not applicable to asbestos actions placed on a trial calendar, unless such has a
trial date more than twelve (12) months from the date the notice of  termination
is given. The Settlement  Agreement  provides that the limit available under the
policy is $100,000 plus  attorneys'  fees while the  Settlement  Agreement is in
effect and is applicable only to the parent company.  Approximately  $35,000 has
been reimbursed by Mount Vernon as of June 30, 1999, for indemnification.

     Worksafe is unable to ascertain the total extent of insurance applicable to
asbestos  claims  against it or the extent to which its insurance  carriers will
provide  coverage.  The two agreements  referred to above between the registrant
and the insurance carriers may not be applicable to Puerto Rico Safety

<PAGE>


Equipment,  which is covered by other insurance.  To date, the claims settled by
Puerto Rico Safety Equipment have been paid in full by insurance.  A schedule of
insurance  believed  to  be  applicable  to  Puerto  Rico  Safety  Equipment  is
designated  Exhibit  99.08.  No agreement  has been  reached with the  insurance
companies  confirming  all of these  policies,  which  range  from  $100,000  to
$500,000 for primary  coverage and $1,000,000 to $5,000,000 for excess coverage.
The policies for Puerto Rico Safety  Equipment  cover the period March 11, 1971,
to July 23, 1986, with various gaps as described on the exhibit.

     The  registrant's  insurance may not provide  coverage for punitive damages
where such damages are sought against it in pending litigation. Punitive damages
are  allowable  in  addition  to  compensatory  damages  and  are  awarded  as a
punishment  to a defendant for the wrong in the  particular  case as well as for
the protection of the public against similar acts, to deter the defendant from a
repetition  of the wrongful  act and to serve as a warning to others.  Usually a
wrong,  aggravated  by an evil or wrongful  motive or a willful and  intentional
misdoing or a reckless indifference  equivalent thereto, is required for a court
to award  punitive  damages.  Worksafe is unable to specify  whether its actions
would give rise to punitive  damages.  It believes  that its actions  should not
give rise to punitive damages. However, there can be no assurance that this will
be the case.

     Worksafe is a party to an action entitled Rule v. The Bethlehem Corporation
pending in the Court of Common Pleas,  Bucks County,  Pennsylvania.  There are 4
defendants including Worksafe. The action was instituted in April, 1997, and has
been referred to both Worksafe's  primary and umbrella insurance  coverage.  The
action is one for injuries  sustained while the plaintiff was allegedly  wearing
Worksafe clothing. Worksafe has $17,000,000.00 of primary and umbrella coverage,
which it believes is more than  sufficient  to cover any  liability  that it may
have with respect to this claim.

     Worksafe is a party to  miscellaneous  other  litigation  which it believes
will not have a material adverse affect against it.

<PAGE>


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

                                                                First Elected
                                       Offices and                Officer of
Name                       Age         Position Held              Worksafe
----                       ---         -------------            -------------

Lawrence Densen            41       President and Chief              1986
                                    Executive Officer

Anthony P.  Towell         68       Senior Vice President            1989
                                    and Secretary

Arthur Wasserspring        58       Vice President of                1997
                                    Finance and Chief
                                    Financial Officer

Richard Boyen              58       Vice President of                1997
                                    Manufacturing
----------
All of the above  executive  officers  have been elected to serve until the next
annual  meeting  of the  board of  directors  presently  anticipated  to be held
December 1999, or until their respective successors are elected and qualified.

<PAGE>


                                     PART II

Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     (a) The principal market on which the Common Stock of Worksafe is traded is
the NASDAQ  Small-Cap  Market and its symbol is WRKS.  The following  chart sets
forth the high and low sales  prices as  determined  from  NASDAQ for the Common
Stock for the last two fiscal years.

     The following chart sets forth the high and low sale prices for the periods
indicated as determined from NASDAQ  quotations  reflecting  interdealer  prices
without  retail  mark-up,  mark-down  or  commission  and  may  not  necessarily
represent actual transactions:

                                    High             Low
                                  -------          ------
Fiscal Year Ended June 30

    1998
    ----
First Quarter                      $ 3.00            $2.25
Second Quarter                       3.25             1.63
Third Quarter                        3.44             1.81
Fourth Quarter                       3.56             2.38

    1999
    ----
First Quarter                      $ 2.38            $1.44
Second Quarter                       3.19             1.25
Third Quarter                        3.31             1.81
Fourth Quarter                       2.19             1.00

     (b) The  approximate  number of holders of record of the Common Stock as of
September  13, 1999,  was 366. The  registrant  believes  there are in excess of
1,200 beneficial holders of the Common Stock.

     (c) (1) No dividends have been paid during the past two years.

         (2) The  registrant  has  no  present  intention  of  paying  any  cash
     dividends in the foreseeable  future and intends to use its net income,  if
     any, in its operations.

         (3) The registrant is prohibited from paying  dividends under  its loan
     agreement with Congress Financial Corporation ("Congress"). However, within
     the terms of its  agreement,  Congress  has  approved a buy-back of 320,000
     shares for up to $400,000.

     (d) During the fiscal  year ending June 30,  1999,  3,500  shares of Common
Stock that were not  registered  under the  Securities  Act of 1933, as amended,
were  sold by the  registrant  at a price  of $1.30  per  share  pursuant  to an
exemption under Section 4(2) of the Securities Act of 1933, as amended.

<PAGE>


ITEM 6.SELECTED FINANCIAL DATA

                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                              Years Ended June 30,
                                -------------------------------------------------
                                1999       1998       1997        1996       1995
                                ----       ----       ----        ----       ----
                              (in thousands, for continuing operations, except
                                            for per share data)
Operations
----------
<S>                           <C>        <C>        <C>         <C>        <C>
Net sales                     $ 24,094   $ 24,807   $ 19,907    $ 17,889   $ 14,791

Income/(loss) from
continuing operations               29        256       (621)        521        423

Basic income (loss) per
share from continuing
operations                         .02        .15       (.44)        .87       1.22

Diluted income (loss)
per share from continuing
operations                         .02        .15       (.44)        .87       1.04

Cash dividends per share(1)          0          0          0           0          0

<CAPTION>
                                               Years Ended June 30,
                                -------------------------------------------------
                                1999       1998       1997        1996       1995
                                ----       ----       ----        ----       ----
                                    (in thousands, except for per share data)
Financial Condition
-------------------
Total assets                  $ 11,806   $ 16,575   $ 13,381    $ 11,546   $  9,719
Long-term debt                     396        538        811         434        490
Stockholders' Equity             3,044      3,899      4,387       2,604      2,026
Book value per share(2)           1.80       2.32       2.61        3.40       5.83
</TABLE>

     (1)  Worksafe  has never  declared  or paid a cash  dividend  on its Common
Stock.  It is the policy of the board of directors to retain earnings for use in
Worksafe's  operations.  In addition,  Worksafe is  prohibited  from paying such
dividends based on its loan agreement with Congress.

     (2) Adjusted to reflect a 1 for 10 reverse stock split effective August 12,
1996.

<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     Worksafe operated in the  manufacturing and distribution  industry segments
until the end of its second  fiscal  quarter for the year ending June 30,  1999,
when it sold its distribution business. Since such sale, Worksafe continues only
its  Manufacturing  Operation.  For an understanding of the significant  factors
that influenced  Worksafe's  performance during the past three fiscal years, the
following  discussion  should  be  read in  conjunction  with  the  consolidated
financial  statements,  including  the  related  notes,  and  other  information
appearing elsewhere in this report.

     Worksafe's continuing operations now consist of its Manufacturing Operation
which produces  limited-use and reusable  industrial apparel and protective knit
gloves.  Worksafe maintains  facilities for warehousing and production in Puerto
Rico,  Alabama,  Mexico  (a  contractor),   Texas,  California,   Louisiana  and
Minnesota.

     The  accompanying  financial  statements  have been restated to reflect the
former  distribution  division  as a  discontinued  operation  and  Management's
Discussion and Analysis discusses only the continuing operations.

     Results of Operations.

     Fiscal 1999 Compared to Fiscal 1998

     Net sales for the year ended June 30, 1999, were approximately  $24,094,000
as compared to  approximately  $24,807,000  for the year ended June 30,  1998, a
decrease of 2.9%. This decrease in sales in fiscal 1999 was in large part due to
the fact  that  manufacturing  inventory  which  normally  would  have been sold
directly  to  customers  during  the  second  half of  fiscal  1999 was  instead
transferred as part of the second quarter  transaction with Arbill,  who in turn
sold the inventory to their customers.  In addition, in prior years, the Company
realized as part of its manufacturing sales, the sales price to end-users. Since
the sale to Arbill of the discontinued operations,  the sales price realized was
the price to  Arbill,  a  distributor,  where the sales  price is lower than the
price to the end-user.

     Worksafe's  gross margin  decreased to 14.3% for fiscal 1999 from 16.8% for
fiscal 1998.  These  reductions  are the continuing  results of the  competitive
environment  in the  marketplace  as well  as the  lower  margins  on  sales  to
distributors as opposed to end-users.  In a continued  effort to increase margin
levels, Worksafe continues to take major steps to reduce overhead expenses, i.e.
by producing more products in Mexico,  and increasing  efficiencies  in material
utilization.

     Selling,  general and  administrative  expenses for the year ended June 30,
1999, were approximately  $2,915,000,  12.1% of sales, compared to approximately
$3,391,000,  13.7% of sales,  for the same period last year.  This decrease as a
percentage of sales was mainly due to lower salaries and related  benefits.  The
Company took  advantage of more vendor  rebates in fiscal 1999,  due to improved
cash availability.

     Interest expense was approximately $563,000 for fiscal 1999, an increase of
approximately $2,000 when compared to fiscal 1998.

     Income from  continuing  operations for fiscal 1999 decreased to $29,000 as
compared to $256,000 for fiscal 1998.  This  decrease was a direct result of the
aforementioned decrease in sales and gross margins.

<PAGE>


Fiscal 1998 Compared to Fiscal 1997

     Net sales during fiscal 1998 increased 24.6% to  approximately  $24,807,000
from  approximately  $19,907,000  during  fiscal 1997.  This  increase  included
approximately $1,123,000 of incremental sales attributable to the glove division
that was acquired in April 1997.  Worksafe believes that the overall increase in
sales was due to increased  demand for Worksafe's  products,  the improvement in
its  inventory  position  and the  continued  overall  improvement  in  industry
conditions.

     The gross profit  percentage  increased to 16.8% for fiscal 1998 from 13.4%
for  fiscal  1997.  This  increase  in gross  profit  was  caused in part by (i)
continued  increases in production  levels by our  contractor in Mexico at lower
costs for  products  previously  produced  in Puerto  Rico and  Alabama and (ii)
continued production efficiencies in Puerto Rico and Alabama.

     Selling,   general  and  administrative   expenses  for  fiscal  1998  were
approximately  $3,391,000 or 13.7% of sales compared to approximately $2,870,000
or 14.4% of sales for  fiscal  1997.  This  increase  was  primarily  due to (i)
$225,000 in incremental  expenses  attributable to the glove division  (acquired
April 1997) and (ii) an increase in total  non-glove  operations  commissions of
$113,000 attributable to increased sales.

     Interest expense was approximately  $561,000 for fiscal 1998 as compared to
approximately  $425,000 in the prior year.  This increase was principally due to
an  increase in average  borrowings  in fiscal  1998 on  Worksafe's  asset-based
facility  with  Congress  as  well  as a  full  year's  interest  on  additional
borrowings  from Congress used to purchase the Minnesota glove business in April
1997.

     Worksafe's   income  from   continuing   operations  for  fiscal  1998  was
approximately  $256,000 as compared to a net loss of  approximately  $621,000 in
fiscal 1997.  This  increase  was caused by  increased  sales and an increase in
gross  margins  offset in part by a loss of  approximately  $266,000  (including
$108,000  in  depreciation  and  amortization)  related  to the  glove  division
acquired  in April  1997,  along with a fourth  quarter  loss in fiscal  1998 of
approximately  $110,000,  which  was  primarily  the  result  of  selling  price
reductions on certain Worksafe products due to competition,  market  conditions,
and cash flow requirements.

Liquidity and Capital Resources

     Worksafe had working  capital as of June 30, 1999,  inclusive of net assets
of  discontinued   operations,   of   approximately   $850,000  as  compared  to
approximately  $1,709,000  as  of  June  30,  1998.  A  substantial  portion  of
Worksafe's  working  capital  consists  of  inventory,  which was  approximately
$4,583,000  and  $6,372,000  as of June 30,  1999 and 1998,  respectively.  This
inventory  reduction  is mainly due to Worksafe  closing its  warehouses  in New
York,  Florida and  Connecticut as part of its Arbill  transaction at which time
Arbill  bought all  manufacturing  inventory  contained  therein.  Although  the
manufacturing  division  maintains a minimum  level of  inventory  for its basic
products, its back order position is expected to keep inventory at lower levels,
thereby  having a  positive  effect on  liquidity.  Worksafe  believes  that its
current working capital position will be sufficient to satisfy its needs for the
next twelve months.

     Worksafe  has a line of  credit  agreement  with  Congress,  which  expires
October 1,  2002.  The line  provides  for  borrowings  up to  $8,000,000,  with
interest  payable monthly at .75% in excess of prime (unless for the year ending
June 30, 2000,  Worksafe is not  profitable,  then the interest  rate becomes 1%
above the prime rate), and an unused line fee of 1/4% a year. The maximum amount
Worksafe can

<PAGE>


borrow on the inventory  portion is $3,600,000.  The limits on borrowings remain
at 85% of  eligible  accounts  receivable  and 55% of  eligible  inventory.  The
amounts  outstanding  at June 30, 1999,  and June 30, 1998,  were  approximately
$5,699,000 and  $8,190,000,  respectively.  Worksafe had $123,000  available for
borrowing at June 30, 1999,  based on its formula  with  Congress.  In addition,
Worksafe may also borrow up to an additional  $175,000  until December 31, 1999,
at which time such additional  loans are payable in full. The loan is subject to
certain working capital and net worth  requirements and is collateralized by all
of the assets of Worksafe not  previously  pledged under other loan  agreements.
The loan agreement prohibits the payment of cash dividends by Worksafe.  At June
30, 1999, Worksafe was not in compliance with the tangible net worth requirement
of the line of credit  agreement.  Congress has since amended such covenant such
that Worksafe is in compliance.

     Net cash  provided by operating  activities  was  principally a result of a
decrease in accounts  receivable and inventory,  which was partially offset by a
decrease in accounts payable and accrued expenses.  Cash flows used in investing
activities  was for the purchase of property,  plant and  equipment.  Cash flows
used in  financing  activities  were  principally  a result of net  paydowns  of
Worksafe's loan with Congress.

     On  September  9,  1999,  the board of  directors  of  Worksafe  approved a
buy-back plan of up to 320,000 shares of Worksafe's common stock to be purchased
over the next two years at the  discretion of Worksafe.  Congress has authorized
Worksafe  to expend  up to  $400,000  for such  purchase.  No  shares  have been
purchased to date.

     Worksafe believes that its current working capital position, line of credit
and operations  will be sufficient to satisfy its cash needs for the next twelve
months.

     Worksafe has no material commitments for capital expenditures.

     At the present time, Worksafe,  together with a variety of defendants, is a
party to various  asbestos-related  lawsuits  involving  a number of  plaintiffs
alleging damages from exposure to asbestos  products sold by Worksafe.  Worksafe
may  become  a party  to  additional  asbestos-related  actions  in the  future.
Worksafe is also party to a  non-asbestos  product  liability  action.  While as
indicated in Item 3. Legal Proceedings,  of this Form 10-K, legal and settlement
costs to Worksafe have not been material to date, Worksafe cannot, at this time,
determine the outcome of these  uncertainties  which may have an adverse  effect
upon the liquidity of Worksafe in the future.

Year 2000

     The Year 2000 issue results from the inability of some computer programs to
identify  the year  2000  properly,  potentially  leading  to  errors  or system
failure.  A company's  business may be  adversely  affected if it, or any of its
suppliers,  customers or other third  parties  with whom it  transacts  business
(including  banks and  governmental  agencies),  have not resolved the Year 2000
issue in a timely manner.

     Worksafe's internal computing systems are primarily limited to hardware and
software for its financial systems, such as general ledger,  accounts receivable
and accounts payable systems,  and word  processing.  Worksafe  believes that it
could  replace  any of its  software or systems,  if  necessary,  quickly and at
reasonable expense.

     Worksafe  has  completed  its  internal  review  with  respect to Year 2000
issues.  Worksafe  does  not  believe  Year  2000  issues  within  its  internal
information systems will have a material adverse effect on Worksafe's business,

<PAGE>


financial  condition  or  results  of  operations.  Worksafe  believes  that its
internal computer systems are currently Year 2000 compliant.

     Worksafe  has  completed  its  review  of the Year  2000  readiness  of its
customers and vendors,  and believes,  based upon such review, that such parties
should not cause a material  disruption in Worksafe's  business due to Year 2000
issues.

     To date, the cost of Worksafe's Year 2000 assessment and compliance efforts
has not been material to Worksafe's results of operations or liquidity. Worksafe
is not aware, at this time, of any Year 2000 non-compliance that will materially
affect Worksafe.

Risks and Other Considerations

     From time to time,  information  provided by Worksafe or statements made by
its employees,  or  information  provided in its filings with the Securities and
Exchange  Commission  may contain  forward-looking  information.  Any statements
contained  herein or otherwise made that are not  statements of historical  fact
may be deemed to be forward-looking statements.  Without limiting the foregoing,
the words "believes", "expects", "anticipates",  "plans" and similar expressions
are intended to identify  forward-looking  statements.  Worksafe's actual future
results may differ  materially from those projections or statements made in such
forward-looking  information  as a result of  various  risks and  uncertainties,
including, but not limited, to the following:

     Worksafe,  since its fiscal year ended June 30, 1991 with the  exception of
fiscal years 1996 and 1995, has had a history of significant  losses.  There can
be no  assurances  that  Worksafe will be profitable or will not incur losses in
the future.

     Worksafe is dependent upon its revolving  line of credit with Congress.  In
the event that  Worksafe is unable to comply with its  obligations  to Congress,
Worksafe's  indebtedness  could be declared  immediately  due and payable and in
certain  cases  Worksafe's  assets  could be  foreclosed  upon.  There can be no
assurances  that  there will be other  sources of  financing  for  Worksafe,  if
required.

     The  registrant  is  a  party  to   approximately   3,800  cases  involving
approximately  8,500  plaintiffs,  as of June 30, 1999 with  respect to asbestos
litigation and additional  asbestos  actions  continue to be brought against it.
During  the year  ended  June 30,  1999, approximately  2,700  asbestos  actions
concerning   approximately  5,300  plaintiffs  have  been  brought  against  the
registrant.  To date,  Worksafe  believes that its  insurance  coverage has been
adequate for those actions previously terminated, but there can be no assurances
that such coverage  will continue to be adequate in the future.  There can be no
assurances  that  asbestos  litigation  will not  have an  adverse  affect  upon
Worksafe.  For a more complete  discussion on asbestos litigation and Worksafe's
insurance  coverage,  reference  is made to Item 3 of this Form 10-K and  future
filings under Form 10-Q.

     Worksafe has competitors that have greater financial, management, sales and
technical  resources  than  Worksafe.  Worksafe's  success  also  depends  to  a
significant  degree  on the  contributions  of its key  management.  The loss of
services of one or more key members of management  could have an adverse  affect
upon Worksafe.  Worksafe is also  dependent upon Dupont which supplies  Worksafe
with  Tyvek  (R)  which is used for  various  lines  of  Worksafe's  limited-use
products.  Management  believes  that its  current  relationship  with Dupont is
satisfactory.  Worksafe is a party to a Garment  Manufacturer  & Seller  License
Agreement with Dupont,  pursuant to which Dupont provides Worksafe with nonwoven
fabric under its trademark.  This agreement,  subject to its terms, continues in
effect until January 31, 2000. Management expects that based upon its past

<PAGE>


relationship  with  Dupont,  although  there  can be no  assurances,  that  this
agreement will be extended.  Loss of Dupont as a supplier of Tyvek(R) would have
material adverse effects on Worksafe's operations.  Worksafe is also required to
maintain substantial inventory for its operations in order to meet the immediate
requirements of its customers who require products on short notice. There can be
no assurances  that Worksafe  will be able to maintain  sufficient  inventory or
that Worksafe will not return to periods where there is not  sufficient  working
capital to maintain its inventory to meet the needs of its customers.

     Worksafe also enjoys the benefits of various tax incentives with respect to
its  operations  in Puerto Rico which are  described in Item 1 of Part I of this
Form 10-K. As Puerto Rico's tax exemptions  are reduced or expire,  Worksafe may
be required to pay taxes on income earned in Puerto Rico.  Worksafe is unable to
predict the amount of such impact after such exemptions are reduced or expire.

     Due to the  foregoing,  the market price of Worksafe's  Common Stock may be
volatile at times in response to fluctuations of Worksafe's  operating  results,
changes in analyst  earnings  estimates,  market  conditions  as well as general
conditions and other factors general to Worksafe.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Worksafe's  principal financial  instrument is its revolving line of credit
with Congress  that provides for interest at the prime rate plus .75%.  Worksafe
is affected by market risk exposure  primarily  through the effect of changes in
interest  rates on amounts  payable by the Company under the  revolving  line of
credit. A significant  rise in the prime rate could materially  adversely affect
Worksafe's business,  financial condition and results of operations. At June 30,
1999,  an  aggregate   principal  amount  of  approximately   $5.7  million  was
outstanding  under  the  revolver.   If  principal  amounts   outstanding  under
Worksafe's  revolving  line of credit  remained at this level for an entire year
and the prime increased or decreased, respectively, by 1%, Worksafe would pay or
save,  respectively,  an additional  $57,000 in interest in that year.  Worksafe
does not utilize  derivative  financial  instruments to hedge against changes in
interest rates or for any other purpose.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the Consolidated Financial Statements annexed hereto.


<PAGE>



------------------------------
CORNICK, GARBER & SANDLER, LLP
------------------------------
Certified Public Accountants


Independent Auditors' Report

Board of Directors
Worksafe Industries Inc.
Huntington Station, New York

We  have  audited  the  accompanying   consolidated  statements  of  operations,
shareholders' equity and cash flows of Worksafe Industries Inc. (formerly Eastco
Industrial  Safety  Corp.) and  subsidiaries  for the year ended June 30,  1997.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our opinion.

In our opinion,  the aforementioned  consolidated  financial  statements present
fairly,  in all material  respects,  the results of operations and cash flows of
Worksafe  Industries Inc. and  subsidiaries for the year ended June 30, 1997, in
conformity with generally accepted accounting principles.

Our audit of the June 30, 1997 financial  statements was made for the purpose of
forming an opinion on the basic financial statements taken as a whole.  Schedule
II for the year ended June 30, 1997 is presented for purposes of complying  with
the  Securities  and  Exchange  Commission's  rules and is not part of the basic
fiancial statements. This schedule has been subjected to the auditing procedures
applied in the audit of the June 30, 1997 basic financial statements and, in our
opinion fairly states in all material respects the financial data required to be
set forth  therein in  relation  to the basic  financial  statements  taken as a
whole.


                                        /s/ CORNICK, GARBER & SANDLER, LLP
                                        CERTIFIED PUBLIC ACCOUNTANTS

Uniondale, New York
October 27, 1997


630 Third Avenue New York, NY 10717-6705 212 567-3600 Fax 212 567-3836
50 Charles Lindbergh Boulevard Uniondale, NY 11542-3600
516 542-9030 Fax 516 542-9035

<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Worksafe Industries Inc. and subsidiaries:


We have audited the accompanying consolidated balance sheets of Worksafe
Industries Inc. (a New York corporation) and subsidiaries (the "Company") as of
June 30, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Worksafe Industries Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial statements taken as a whole.  Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.


                                             /s/ARTHUR ANDERSEN LLP


Melville, New York
October 4, 1999


                                      -1-

<PAGE>


                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      June 30,
                                                                          -------------------------------
                                       ASSETS                                  1999               1998
                                       ------                                  ----               ----
<S>                                                                       <C>                <C>
CURRENT ASSETS:
   Cash and cash equivalents                                              $    129,352       $    223,125
   Accounts receivable, net of allowance for doubtful accounts
     of $72,500 and $75,000, respectively                                    3,485,813          3,554,502
   Inventories                                                               4,582,581          6,371,626
   Other current assets                                                        812,868            505,887
   Net assets of discontinued operations                                       205,142          3,192,340
                                                                          ------------       ------------
                  Total current assets                                       9,215,756         13,847,480

   Property, plant and equipment, net                                        2,112,886          2,253,184
   Excess of cost over net assets acquired                                     403,547            426,229
   Other assets                                                                 73,832             24,794
   Net assets of discontinued operations                                          --               23,493
                                                                          ------------       ------------
                  Total assets                                            $ 11,806,021       $ 16,575,180
                                                                          ============       ============

                        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Loans payable                                                          $  5,698,642       $  8,189,842
   Current maturities of long-term debt                                        151,411            277,628
   Accounts payable                                                          2,289,220          3,389,050
   Accrued expenses and other liabilities                                      226,580            281,569
                                                                          ------------       ------------
                  Total current liabilities                                  8,365,853         12,138,089

LONG-TERM DEBT                                                                 396,447            538,283
                                                                          ------------       ------------
                  Total liabilities                                          8,762,300         12,676,372
                                                                          ------------       ------------

COMMITMENTS AND CONTINGENCIES (Note 9 and 11)

SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value; authorized 1,000,000 shares; no
     shares issued and outstanding                                                --                 --
   Common stock, $.12 par value; authorized 20,000,000 shares;
     1,686,579 and 1,683,079 shares issued and outstanding,
     respectively                                                              202,390            201,970
   Additional paid-in capital                                                9,844,338          9,807,708
   Accumulated deficit                                                      (7,003,007)        (6,110,870)
                                                                          ------------       ------------
                  Total shareholders' equity                                 3,043,721          3,898,808
                                                                          ------------       ------------
                  Total liabilities and shareholders' equity              $ 11,806,021       $ 16,575,180
                                                                          ============       ============
</TABLE>


      The accompanying notes are an integral part of these balance sheets.


                                      -2-

<PAGE>


                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                     Years Ended June 30,
                                                      ------------------------------------------------
                                                          1999              1998              1997
                                                          ----              ----              ----

<S>                                                   <C>               <C>               <C>
NET SALES                                             $ 24,093,811      $ 24,807,480      $ 19,906,887

COST OF GOODS SOLD                                      20,659,453        20,644,336        17,242,844
                                                      ------------      ------------      ------------

                  Gross profit                           3,434,358         4,163,144         2,664,043

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES             2,914,617         3,390,604         2,869,699
                                                      ------------      ------------      ------------

INCOME (LOSS) FROM OPERATIONS                              519,741           772,540          (205,656)

OTHER INCOME, net                                          (72,768)          (44,166)           (9,074)

INTEREST EXPENSE                                           563,451           561,128           424,590
                                                      ------------      ------------      ------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                    29,058           255,578          (621,172)

DISCONTINUED OPERATIONS:
   Loss from discontinued operations                    (1,454,167)         (744,063)         (770,658)
   Gain on sale of discontinued operations                 532,972                --                --
                                                      ------------      ------------      ------------

                  Net loss                            $   (892,137)     $   (488,485)     $ (1,391,830)
                                                      ============      ============      ============

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
   Income (loss) from continuing operations           $        .02      $        .15      $       (.44)
   Loss from discontinued operations                          (.87)             (.44)             (.54)
   Gain on sale of discontinued operations                     .32               .00               .00
                                                      ------------      ------------      ------------
   Net loss                                           $       (.53)     $       (.29)     $       (.98)
                                                      ============      ============      ============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
       Basic                                             1,684,246         1,683,079         1,413,775
                                                      ============      ============      ============
       Diluted                                           1,691,452         1,696,336         1,413,775
                                                      ============      ============      ============
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      -3-

<PAGE>


                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                       Common Stock *       Additional
                                                                  -----------------------    Paid-In      Accumulated
                                                                     Shares      Amount      Capital        Deficit         Total
                                                                     ------      ------      -------        -------         -----

<S>                                                                 <C>        <C>         <C>           <C>            <C>
BALANCE, June 30, 1996                                                765,488  $   91,859  $ 6,742,476   $(4,230,555)   $ 2,603,780
   Shares issued in private placement                                 114,000      13,680      140,320          --          154,000
   Shares issued in shareholder rights and public offering            703,591      84,431    2,524,405          --        2,608,836
   Sale of warrants to underwriter                                       --          --              7          --                7
   Shares issued for acquisition of glove manufacturing business      100,000      12,000      400,500          --          412,500
   Net loss for the year ended June 30, 1997                             --          --           --      (1,391,830)    (1,391,830)
                                                                  -----------  ----------  -----------   -----------    -----------
BALANCE, June 30, 1997                                              1,683,079     201,970    9,807,708    (5,622,385)     4,387,293
   Net loss for the year ended June 30, 1998                             --          --           --        (488,485)      (488,485)
                                                                  -----------  ----------  -----------   -----------    -----------
BALANCE, June 30, 1998                                              1,683,079     201,970    9,807,708    (6,110,870)     3,898,808
   Stock based compensation                                              --          --         32,500          --           32,500
   Shares issued upon exercise of stock options                         3,500         420        4,130          --            4,550
   Net loss for the year ended June 30, 1999                             --          --           --        (892,137)      (892,137)
                                                                  -----------  ----------  -----------   -----------    -----------
BALANCE, June 30, 1999                                              1,686,579  $  202,390  $ 9,844,338   $(7,003,007)   $ 3,043,721
                                                                  ===========  ==========  ===========   ===========    ===========
</TABLE>

     * Gives effect to a 1-for-10 reverse stock split in August 1996.


        The accompanying notes are an integral part of these statements.


                                      -4-

<PAGE>


                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                            Years Ended June 30,
                                                                               ----------------------------------------------
                                                                                   1999             1998             1997
                                                                                   ----             ----             ----
<S>                                                                            <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) from continuing operations                                $     29,058     $    255,578     $   (621,172)
   Adjustments to reconcile net income (loss) from continuing operations
     to net cash provided by (used in) operating activities:
     Depreciation and amortization                                                  244,621          236,307          132,882
     Provision for losses on accounts receivable                                     46,248           16,000          (27,625)
     Loss on disposal of fixed assets                                                16,173             --               --
     Stock based compensation expense                                                32,500             --               --
     Net changes in assets and liabilities:
       Accounts receivable                                                           22,441       (1,012,890)        (401,644)
       Inventories                                                                1,789,045       (1,602,036)        (721,794)
       Other current assets                                                        (306,981)         (49,290)         (85,310)
       Other assets                                                                 (49,038)          36,544          145,572
       Accounts payable                                                          (1,099,830)       1,127,056         (169,000)
       Accrued expenses and other liabilities                                       (54,989)          57,772           55,163
                                                                               ------------     ------------     ------------
                Total adjustments                                                   640,190       (1,190,537)      (1,071,756)
                                                                               ------------     ------------     ------------
                Net cash provided by (used in) operating activities                 669,248         (934,959)      (1,692,928)
                                                                               ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property and equipment                                            (97,814)        (280,888)        (179,815)
   Acquisition of glove manufacturing business                                         --               --           (734,526)
                                                                               ------------     ------------     ------------
                Net cash used in investing activities                               (97,814)        (280,888)        (914,341)
                                                                               ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayments of long-term debt                                                    (268,053)        (274,320)         (79,551)
   Borrowings under line of credit agreement                                     31,095,163       35,919,028       32,054,480
   Repayments under line of credit agreement                                    (33,586,363)     (33,146,861)     (32,489,880)
   Proceeds from exercise of stock options                                            4,550             --               --
   Net proceeds from private placement of common stock                                 --               --            154,000
   Net proceeds from shareholder rights and public offering                            --               --          2,608,843
   Borrowings to finance acquisition of glove manufacturing business                   --               --            440,000
                                                                               ------------     ------------     ------------
                Net cash (used in) provided by financing activities              (2,754,703)       2,497,847        2,687,892
                                                                               ------------     ------------     ------------

Net cash (used in) provided by continuing operations                             (2,183,269)       1,282,000          (80,623)

Net cash used in discontinued operations                                             (4,218)      (1,171,133)        (614,395)

Net cash provided by sale of discontinued operations                              2,093,714             --               --
                                                                               ------------     ------------     ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                (93,773)         110,867         (533,772)

CASH AND CASH EQUIVALENTS, beginning of year                                        223,125          112,258          646,030
                                                                               ------------     ------------     ------------

CASH AND CASH EQUIVALENTS, end of year                                         $    129,352     $    223,125     $    112,258
                                                                               ============     ============     ============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid during the year for interest                                      $    779,443     $    879,406     $    680,749
                                                                               ============     ============     ============
   Cash paid during the year for income taxes                                  $      3,832     $      8,454     $     12,758
                                                                               ============     ============     ============

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
   Noncash consideration for acquisition of glove manufacturing business:
     Common stock issued                                                       $       --       $       --       $    412,500
                                                                               ============     ============     ============
     Minimum guaranteed payments                                               $       --       $       --       $    240,000
                                                                               ============     ============     ============
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      -5-

<PAGE>


                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 1999

1. BUSINESS AND ORGANIZATION:

Operations

Worksafe Industries Inc. (formerly Eastco Industrial Safety Corp.) and
subsidiaries (the "Company") is a corporation organized and existing under the
laws of the State of New York, having been incorporated since May 15, 1958. The
Company manufactures limited-use and reusable clothing and safety products sold
to distributors for end use by manufacturers, utilities, hospitals, glass
handlers and others. Products include headwear, hoods, coveralls, aprons, lab
coats, gloves, and suits for handling hazardous materials. Most sales come from
disposable apparel made of E.I. DuPont DeNemours Company's Tyvek(R), a spun
bonded polyolefin. Products made of Tyvek accounted for approximately 67%, 75%
and 63% of net sales for the years ended June 30, 1999, 1998 and 1997,
respectively. The Company has sales representatives and independent distributors
in the United States and Puerto Rico.

Principles of Consolidation

The consolidated financial statements include the accounts of Worksafe
Industries Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with maturities of
three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market, which represents estimated net realizable value.

Depreciation and Amortization

Property, plant and equipment are depreciated on a straight-line basis over the
estimated useful lives of the related assets. Leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated useful
lives or the remaining term of the lease.

Excess of Cost over Net Assets Acquired

The excess of cost over the net assets of a business acquired in April 1997 is
being amortized on a straight-line basis over its estimated useful life of 20
years. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company periodically evaluates this asset for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Management believes that there is no
impairment of this asset as of June 30, 1999.


                                      -6-

<PAGE>


Fair Value of Financial Instruments

The Company calculates the fair value of financial instruments and includes this
additional information in the notes to financial statements when the fair value
is different than the book value of those financial instruments. When the fair
value approximates book value, no additional disclosure is made. Cash and cash
equivalents, receivables, loans payable and long-term debt are reflected in the
consolidated balance sheets at amounts considered by management to reasonably
approximate their fair value because of their relatively short-term maturities,
recent incurrence or because they bear variable interest rates.

Stock-Based Compensation

The Company complies with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", by continuing to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," while providing the required pro forma disclosures as if the fair
value method had been applied.

Comprehensive Income

During fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which requires companies to report all changes in equity during a
period, except those resulting from investments by owners and distributions to
owners, for the period in which they are recognized. Comprehensive income is the
total of net income and all other nonowner changes in equity (or other
comprehensive income) such as unrealized gains/losses on securities classified
as available-for-sale, foreign currency translation adjustments and minimum
pension liability adjustments. Comprehensive and other comprehensive income must
be reported on the face of annual financial statements. For the years ended June
30, 1999, 1998 and 1997, there were no items that gave rise to comprehensive
income.

Segment Information

During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Reportable operating
segments are determined based on the Company's management approach. The
management approach, as defined by SFAS No. 131, is based on the way that the
chief operating decision-maker organizes the segments within an enterprise for
making operating decisions and assessing performance. The Company is organized
and operates in one operating segment, the manufacturing of protective clothing
and safety products that are sold to distributors for end use by manufacturers,
utilities, hospitals and others. As a result, no segment information has been
provided for the years ended June 30, 1999, 1998 or 1997.

Earnings Per Share

In accordance with SFAS No. 128, "Earnings Per Share," basic net income (loss)
per common share ("Basic EPS") is computed by dividing net income (loss) by the
weighted average number of common shares outstanding. Diluted net income (loss)
per common share ("Diluted EPS") is computed by dividing net income (loss) by
the weighted average number of common shares and dilutive common share
equivalents and convertible securities then outstanding.

Common stock equivalents were excluded from the computation for the year ended
June 30, 1997, as the inclusion of their impact would be anti-dilutive. The
number of dilutive common share equivalents included in diluted earnings per
share was 7,206 and 13,257 for the years ended June 30, 1999 and 1998,
respectively.


                                      -7-

<PAGE>


Use of Estimates

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

Reclassifications

Certain prior year balances have been reclassified in order to conform with
current year presentation.

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal years beginning
after June 15, 1999 (subsequently amended by SFAS No. 137, to be effective for
all fiscal years beginning after June 15, 2000) and will not require retroactive
restatement of prior period financial statements. This statement requires the
recognition of all derivative instruments as either assets or liabilities in the
balance sheet measured at fair value. Derivative instruments will be recognized
as gains or losses in the period of change. If certain conditions are met where
the derivative instrument has been designated as a fair value hedge, the hedge
items may also be marked to market through earnings, thus creating an offset. If
the derivative is designed and qualifies as a cash flow hedge, the changes in
fair value of the derivative instrument may be recorded in comprehensive income.
The Company does not presently make use of derivative instruments.

2.   DISCONTINUED OPERATIONS:

On January 11, 1999, the Company sold its distribution division to Arbill
Industries, Inc. ("Arbill"), realizing net cash proceeds of approximately
$2,094,000. In addition, the Company also received a $315,000 note receivable.
This division specialized in the distribution of industrial safety products
manufactured by third parties. The sale resulted in a gain on sale of
discontinued operations of approximately $533,000. As a result of this
transaction, the Company has reported the operating results, net assets and cash
flows of the distribution division as a discontinued operation, with prior years
restated.

Summarized financial information for this discontinued operation as of June 30,
and for the three fiscal years then ended is as follows:

                                           1999          1998          1997
                                        ----------    ----------    ----------

Net sales                              $ 4,240,767    $9,531,558    $8,081,082
Gross profit                               569,721     1,553,008     1,485,832
Loss from discontinued operations       (1,454,167)     (744,063)     (770,658)
Current assets                             205,142     4,302,161     3,420,313
Total assets                               205,142     4,325,654     3,448,362
Current liabilities                           --       1,109,821       659,599
Net assets of discontinued operations      205,142     3,215,833     2,788,763


                                      -8-

<PAGE>


3.   INVENTORIES:

Inventories consist of the following at June 30, 1999 and 1998:

                                                1999           1998
                                             ----------     ----------

          Raw materials                      $1,571,734     $1,579,096
          Work-in-process                     1,040,826        802,011
          Finished goods                      1,970,021      3,990,519
                                             ----------     ----------
                        Total                $4,582,581     $6,371,626
                                             ==========     ==========

4.   PROPERTY, PLANT AND EQUIPMENT, NET:

Property, plant and equipment is comprised of the following at June 30, 1999 and
1998:

<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                                                                         Useful
                                                                        1999               1998        Life (Years)
                                                                    -----------        -----------     ------------

<S>                                                                 <C>                <C>                <C>
          Land                                                      $   382,000        $   382,000           N/A
          Building and leasehold improvements                           867,009            842,967        5 - 40
          Machinery and equipment                                     2,144,065          2,116,208        3 - 10
          Furniture and fixtures                                        159,196            189,198        7 - 10
                                                                    -----------        -----------
                                                                      3,552,270          3,530,373

          Less: Accumulated depreciation and amortization            (1,439,384)        (1,277,189)
                                                                    -----------        -----------
                                                                    $ 2,112,886        $ 2,253,184
                                                                    ===========        ===========
</TABLE>

Depreciation and amortization expense for property, plant and equipment for the
fiscal years ended June 30, 1999, 1998 and 1997 amounted to $221,939, $213,626
and $129,082, respectively.

5.   INCOME TAXES :

The Company records income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax liabilities and
assets based on differences between the financial accounting and income tax
bases of assets and liabilities using enacted tax rates in effect for the years
in which the differences are expected to reverse.

While SFAS No. 109 requires the recognition of a deferred tax asset for the
benefit of net operating loss carryforwards, it also requires the recognition of
a valuation allowance when it is more likely than not that such benefit will not
be realized. As a result of the Company's history of losses, it has recorded a
valuation allowance equal to the net deferred tax asset accounts as of June 30,
1999 and 1998.


                                      -9-

<PAGE>


Deferred income taxes relate to the following temporary differences and
carryforwards as of June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                1999                  1998
                                                                             -----------          -----------
<S>                                                                          <C>                  <C>
          Deferred tax assets:
             Net operating loss carryforwards                                $ 2,584,000          $ 2,356,000
             Allowance for doubtful accounts and credits                          92,000               79,000
             Tax basis adjustments to inventory                                   89,000              139,000
             Other accruals                                                       22,000                 --
             Accelerated depreciation of property and equipment                     --                  5,000
                                                                             -----------          -----------
                                                                               2,787,000            2,579,000

          Deferred tax liabilities:
             Accelerated depreciation of property and equipment                   55,000                 --
             Other                                                                  --                 18,000
                                                                             -----------          -----------
                                                                                  55,000               18,000
                                                                             -----------          -----------

                 Balance                                                       2,732,000            2,561,000

                 Less: Valuation allowance                                    (2,732,000)          (2,561,000)
                                                                             -----------          -----------

          Net deferred income taxes after valuation allowance                $      --            $      --
                                                                             ===========          ===========
</TABLE>

Two wholly-owned Puerto Rico based subsidiaries have been granted exemptions
from paying Puerto Rico income taxes under provisions of the Puerto Rico
Industrial Tax Exemption Act of 1963, provided such subsidiaries continue to
meet the terms and conditions of their grants. One subsidiary's exemption
expired June 30, 1999. This subsidiary is in the process of applying for an
extension of this exemption. If granted, the extension would be for ten years
and would impose an income tax rate of 5% on the taxable income, and may grant
the Company a 75% exemption on the corresponding property tax, municipal tax and
other taxes. The second subsidiary has received a 90% exemption from Puerto Rico
income and property taxes and a 60% exemption from Puerto Rico municipal income
taxes until June 2006. These subsidiaries have elected, pursuant to Section 936
of the Internal Revenue Code, to receive credits equivalent to the amount of
federal income taxes that would otherwise be due on their income.

The Omnibus Budget Reconciliation Act of 1993 (the "Act") imposes limitations on
computing the Possession Tax Credit under Section 936 for tax years beginning
after 1993. In addition, the Act makes the 100% dividends received deduction
subject to the Alternative Minimum Tax calculation. The Small Business Job
Protection Act of 1996 further limits the Possession Tax Credit for years
beginning after 2001, with the credit being eliminated in the years beginning
after 2005.

Dividends, if paid by the Puerto Rico based subsidiaries, are subject to a
withholding tax of 10%. However, no taxes have been provided on their aggregate
undistributed earnings (approximately $666,000 at June 30, 1999), as it is
management's intention to reinvest such earnings indefinitely.


                                      -10-

<PAGE>


A reconciliation between the tax provision (benefit) at the federal statutory
tax rate and the effective tax rate is as follows:

<TABLE>
<CAPTION>
                                                                                            Years ended June 30,
                                                                                  ----------------- ---------------------

                                                                                     1999           1998           1997
                                                                                  ---------      ---------      ---------
<S>                                                                               <C>            <C>            <C>
          Income tax benefit at the statutory rate                                $(303,000)     $(166,000)     $(529,000)
          Effect of net operating loss of Puerto Rican subsidiaries for
            which there is no current tax benefit                                   177,000        256,000        172,000
          Effect of domestic net operating loss for which there is no
            current tax benefit                                                     126,000           --          357,000
          Benefit of utilization of net operating loss carryforwards                   --          (90,000)          --
                                                                                  ---------      ---------      ---------

                   Actual income tax expense                                      $    --        $    --        $    --
                                                                                  =========      =========      =========
</TABLE>

At June 30, 1999, the Company has net operating loss carryforwards of
approximately $6,800,000 for federal income tax purposes. The Company's domestic
operations generated taxable income in fiscal 1998, for which it utilized
approximately $337,000 of net operating loss carryforwards. Such carryforwards
expire from 2005 through 2019. As a result of the private placement offering in
June 1996, the amount of the loss carryforwards which can be utilized to offset
future taxable income will be limited to approximately $345,000 per year, plus
any loss carryforwards incurred after June 30, 1996. However, to the extent such
annual limitation is not utilized in any year, it may be further carried forward
until the carryforward would have otherwise expired.

6.   LOANS PAYABLE:

Loans payable at June 30, 1999 and 1998 are comprised of borrowings under the
Company's line of credit agreement with Congress Financial Corporation
("Congress").

The Company amended and extended its line of credit agreement with Congress
during June 1999. The line, which expires in October 2002, provides for
borrowings of up to $8,000,000 with interest payable monthly at 3/4% above the
prime rate (7.75% at June 30, 1999), plus an unused line fee of 1/4% per year.
Additionally, if the Company does not report positive pre-tax income for the
fiscal year ending June 30, 2000, the monthly interest rate will be adjusted to
1% above the prime rate. Borrowings are limited to 85% of eligible accounts
receivable, as defined, and 55% of eligible inventory, as defined, up to maximum
inventory borrowings of $3,600,000. The loans are subject to certain working
capital and tangible net worth requirements and are collateralized by all assets
of the Company not previously pledged under other loan agreements. The loan
agreement prohibits the payment of dividends by the Company. At June 30, 1999,
the Company had approximately $123,000 remaining under the line of credit for
additional borrowings.

In addition to the loans provided under the line of credit, the Company may also
borrow up to $175,000 in supplemental loans until December 31, 1999, of which
approximately $114,000 remained available at June 30, 1999. All outstanding
amounts related to supplemental loans are payable in full on December 31, 1999.

At June 30, 1999, the Company was not in compliance with the tangible net worth
requirement of the line of credit agreement. Congress has since amended such
covenant such that the Company is in compliance.


                                      -11-

<PAGE>


7.   LONG TERM DEBT :

Long term debt is comprised of the following at June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                                       1999         1998
                                                                                                     --------     --------
<S>                                                                                                  <C>          <C>
          Mortgage payable - interest at 12% per annum, collateralized by land, building
             and personal property (a)                                                               $377,426     $404,985
          Mortgage payable - interest at 11/4% above the prime rate, collateralized by all
             assets of the Puerto Rico subsidiaries (b)                                                29,931      119,725
          Term loan - interest at 11/4% above the prime rate, collateralized by all assets
             of the Company not previously pledged (c)                                                 30,759      123,034
          Guaranteed payments for purchase of glove manufacturing business (d)                        100,167      168,167
          Other                                                                                         9,575         --
                                                                                                     --------     --------
                            Total                                                                     547,858      815,911

                            Less: Current portion                                                     151,411      277,628
                                                                                                     --------     --------

                            Noncurrent portion                                                       $396,447     $538,283
                                                                                                     ========     ========
</TABLE>


Maturities of the long-term debt are as follows:

      Year ending June 30:
                  2000                       $151,411
                  2001                         58,942
                  2002                         57,588
                  2003                        279,917
                                             --------
                        Total                $547,858
                                             ========

(a)  The mortgage with an original interest rate of 14.0% per annum, and which
     was due in July 1997, was amended and extended on September 26, 1996. The
     amendment reduced the annual interest rate to 12.0% commencing July 1,
     1997, with monthly payments of $6,223 until July 1, 2002, at which point
     the remaining balance of approximately $275,000 is payable. In connection
     with the original mortgage in 1992, the Company issued five-year warrants
     to acquire 10,833 shares at $30.00 a share. In January 1995, the Company
     reduced the exercise price to $13.00 and extended the expiration date.
     These warrants expired during April 1999. Approximately 38% of this
     mortgage is held by a group of investors which includes the spouse of a
     certain officer and director, the spouse of another director, a current
     director, and a past director of the Company. Interest on the mortgage
     aggregated approximately $47,000, $46,000 and $65,000 for the years ended
     June 30, 1999, 1998 and 1997, respectively.

(b)  The mortgage is payable in 29 monthly principal installments of $7,690 plus
     interest to October 1, 1999. The funds received were used for the
     acquisition of the glove manufacturing business.

(c)  The term loan is payable in 29 monthly principal installments of $7,483,
     plus interest to October 1, 1999. The funds received were used for the
     acquisition of the glove manufacturing business.


                                      -12-

<PAGE>


(d)  This amount is comprised of guaranteed payments to two individuals in
     connection with the acquisition of the glove manufacturing business. One
     individual is entitled to 10% of income before taxes, as defined, of the
     glove manufacturing business for the five-year period commencing July 1,
     1997, up to a maximum of $180,000, but in no event less than $18,000 per
     year, for which the Company accrued the $90,000 minimum payment in 1997.
     The second individual entered into a consulting agreement with the Company
     for the three-year period commencing April 17, 1997, which called for a fee
     of $50,000 per year, payable in monthly installments. The Company accrued
     the $150,000 required payment in 1997. The $240,000 aggregate minimum
     payments accrued, which are due regardless of continued employment, were
     recorded as additional purchase price. No imputed interest was recorded on
     these payments as the effect would not have been material.

8.   SHAREHOLDERS' EQUITY:

Preferred Stock

On August 12, 1996, the shareholders of the Company approved an amendment to the
Company's certificate of incorporation to authorize 1,000,000 shares of
preferred stock. As of June 30, 1999, no preferred shares have been issued.

Common Stock

In April 1991, the Company sold, pursuant to a rights offering, 48,007 shares of
common stock. In connection therewith, the underwriter was sold a warrant to
purchase 4,078 shares of common stock at $53.30 per share, which was exercisable
until February 28, 1996. The Company had also borrowed $200,000 with interest at
17% per annum, during February 1991, from five unrelated parties. These loans,
including interest, were repaid out of the proceeds of the rights offering. In
connection with these loans, the Company issued warrants to purchase 833 shares
of common stock, exercisable at $30.00 per share until May 13, 1996. In January
1995, the Company reduced the exercise price of the above warrants to $13.00 and
extended their expiration dates. These warrants expired in April 1999.

On April 19, 1994, the Company sold in a public offering, 200,000 units at
$20.00 per unit, each consisting of one share of the Company's common stock and
one Class A warrant. Each warrant entitled the holder to purchase one share of
common stock at an exercise price of $24.00 a share from April 1995 to April
1999. In January 1995, the Company reduced the exercise price to $13.00 a share.
In addition, the Company sold to the underwriter for $10 an option, exercisable
from April 1995 to April 1999, options to purchase 23,000 additional units at
$29.00 per unit, and entered into a two-year consulting agreement with the
underwriter at a total cost of $72,000. All the aforementioned warrants and
options expired in April 1999.

In October 1996, the Company sold, pursuant to a combination shareholder rights
and public offering, 703,591 units at $5.00 per unit, with each unit consisting
of one share of common stock and one Class B warrant. Each warrant entitled the
holder to purchase one share of common stock at an exercise price of $6.25 per
share during the period from one year to three years after the closing date of
the offering. These warrants expired subsequent to June 30, 1999. The Company
also sold to the offering agent/underwriter, for a total value of $7, warrants
to purchase 70,359 units. The warrants are exercisable at $6.00 per unit for
four years commencing in October 1997. In addition, the Company entered into a
one-year consulting agreement with the offering agent/underwriter for
approximately $70,000.


                                      -13-

<PAGE>


Private Placements

On June 28, 1996, the Company issued, in a private placement, 10 1/2 units at
$57,000 a unit, with each unit consisting of 38,000 shares of the Company's
common stock. The net proceeds to the Company were approximately $501,000 after
fees to the placement agent and other expenses. The proceeds were used to repay
a $500,000 bridge loan obtained in May 1996. On July 9, 1996, 3 additional units
were sold for net proceeds of approximately $165,000. The Company issued
three-year warrants to purchase 2,500 shares of common stock at $10.00 per share
in connection with the foregoing transactions, all of which expired subsequent
bo June 30, 1999.

Other Warrants

On May 13, 1996, warrants to purchase 9,003 shares of the Company's common stock
were granted to each of the Company's then president and two of the
vice-presidents, in exchange for their guarantees on over-advances by Congress.
The warrants are exercisable until February 23, 2001 at $5.35 per share.

On July 26, 1995, the Company issued to a consulting firm, which was the
employer of a then-new director of the Company, a five-year warrant to purchase
12,500 shares of the Company's common stock at $12.50 a share.

In January 1994, a corporate officer/director of the Company purchased a warrant
from a prior lender. The warrant is for the purchase of 92,477 shares at $5.62
per share. The expiration date of this warrant was extended from March 31, 1997
until April 11, 1999, and has since been extended until April 11, 2000.

Incentive Stock Option Plans

The Company's 1992 Incentive Stock Option Plan provides for the granting of
options for up to 20,000 shares of the Company's common stock to December 2002.
At June 30, 1999, options to purchase 300 shares at $27.50 per share are
outstanding and exercisable. The Company has agreed not to issue any additional
options under this plan.

The Company's 1994 Incentive Stock Option Plan provides for the granting of
options for up to 10,000 shares of the Company's common stock to January 2004.
At June 30, 1999, options to purchase 8,500 shares at $10.63 per share are
outstanding and exercisable.

On August 12, 1996, the shareholders approved the adoption of the 1996 Incentive
Stock Option Plan, which provides for the granting of options to key employees
for up to 300,000 shares of the Company's common stock until May 2006. As of
June 30, 1999, 280,500 stock options were granted to employees at exercise
prices ranging from $1.30 to $2.63, of which 131,400 are exercisable. Of these
options, 10,000 will vest over the next two years; the remaining options will
vest based upon the Company achieving certain sales and income requirements.

Options granted under the incentive stock option plans must be exercised within
such periods, as stated in the plans, and in any event, must be exercised no
later than 10 years after the date they are granted. The plans provide that the
exercise price of the options may not be less than 100% of the fair market value
of common stock at the date of grant, or 110% in the case of an incentive stock
option granted to any employee owning more than 10% of the voting power of all
classes of stock of the Company.


                                      -14-

<PAGE>


Transactions under the above Incentive Stock Option plans are summarized as
follows:

<TABLE>
<CAPTION>
                                                               June 30, 1999        June 30, 1998          June 30, 1997
                                                           --------------------  ---------------------  --------------------
                                                                       Weighted               Weighted              Weighted
                                                                       Average                Average               Average
                                                                       Exercise               Exercise              Exercise
                                                            Shares      Price     Shares       Price     Shares      Price
                                                            ------      -----     ------       -----     ------      -----
<S>                                                        <C>        <C>         <C>         <C>          <C>      <C>
          Outstanding at beginning of year                 239,900    $  2.58     241,065     $  2.66      9,665    $ 12.60
             Granted                                        76,200       2.19       1,400        2.58    231,400       2.25
             Forfeited                                      (7,000)      2.50        (400)       2.25       --         --
             Exercised                                      (3,500)      1.30        --          --         --         --
             Expired/Canceled                              (16,300)      2.44      (2,165)      12.08       --         --
                                                           -------    -------    --------     -------   --------    -------

          Outstanding at end of year                       289,300    $  2.66     239,900     $  2.58    241,065    $  2.66
                                                           =======               ========                =======
          Exercisable at end of year                       140,200    $  2.83      68,300     $  3.41     69,065    $  4.30
                                                           =======               ========                =======
          Weighted average fair value of
             options granted                               $  2.04               $   2.34               $   2.06
</TABLE>

Other Stock Options

1996 Stock Options

On August 12, 1996, the shareholders approved the adoption of the 1996
Nonqualified Stock Option Plan, which provides for the granting of options for
up to 300,000 shares of the Company's stock until August 2006. As of June 30,
1999, 180,000 nonqualified stock options were granted to employees under the
1996 Nonqualified Stock Option Plan at exercise prices ranging from $2.25 -
$3.44 per share, of which 97,692 are exercisable at June 30, 1999.

1995 Stock Options

On January 20, 1995, the Board of Directors granted to the Company's then
president and two vice-presidents ten-year nonqualified options to purchase
249,708 shares at $5.17 per share, of which 124,854 are exercisable at June 30,
1999. The remainder are exercisable after five years, but may become exercisable
sooner upon the Company achieving certain pretax earnings targets.

Other nonqualified options outstanding and exercisable at June 30, 1999, under
prior years' grants, aggregate 3,108 shares at exercise prices of $16.88 to
$30.00 per share.

Non-qualified stock option activity is summarized as follows:

<TABLE>
<CAPTION>
                                                               June 30, 1999        June 30, 1998          June 30, 1997
                                                          --------------------  ----------------------  --------------------
                                                                      Weighted                Weighted              Weighted
                                                                       Average                Average                Average
                                                                      Exercise               Exercise                Exercise
                                                           Shares      Price      Shares       Price     Shares       Price
                                                           ------      -----      ------       -----     ------       -----
<S>                                                       <C>          <C>      <C>           <C>       <C>          <C>
          Outstanding at beginning of year                376,816      $ 3.84    395,816      $  4.17    252,816     $  5.26
             Granted                                       56,000        2.38     21,000         3.44    143,000        2.25
             Forfeited                                       --           --     (32,000)        2.25       --          --
             Expired/Canceled                                --           --      (8,000)        2.25       --          --
                                                          --------     -------   --------     -------   --------     -------

          Outstanding at end of year                       432,816     $ 4.14    376,816      $  3.84    395,816     $  4.17
                                                          ========              ========                ========
          Exercisable at end of year                       225,654     $ 4.10    159,062      $  4.86    156,562     $  4.83
                                                          ========              ========                ========
          Weighted average fair value of
             options granted                              $   1.62              $   3.13                $   2.06

</TABLE>


                                      -15-

<PAGE>


The following table summarizes information about stock options outstanding at
June 30, 1999:

<TABLE>
<CAPTION>
                                                     Options Outstanding                      Options Exercisable
                                      -----------------------------------------------      -------------------------
                                         Number            Weighted          Weighted         Number        Weighted
                                      Outstanding           Average           Average      Exercisable       Average
                                           at              Remaining         Exercise           at          Exercise
      Range of Exercise Prices          6/30/99        Contractual Life        Price         6/30/99          Price
      ------------------------          -------        ----------------        -----         -------          -----
<S>                                  <C>               <C>                   <C>           <C>              <C>

     $   1.30   -  $  1.95            21,900           1.18                  $  1.30        21,900          $  1.30
         1.96   -     2.94           419,008           7.71                     2.49       187,600             2.48
         2.95   -     4.43            21,000           8.78                     3.44        21,000             3.44
         4.44   -     6.65           249,708           5.56                     5.11       124,854             5.11
        10.00   -    15.01             8,500           5.56                    10.63         8,500            10.63
        15.02   -    22.52             2,000           6.07                    16.88         2,000            16.88
</TABLE>


If the Company had elected to recognize compensation cost for option grants to
its employees, officers and directors under the fair value method of SFAS No.
123, rather than continue to apply the provisions of APB Opinion No. 25, net
loss and the related per share amounts would have been reported as indicated by
the following pro forma amounts:

<TABLE>
<CAPTION>
          Year Ended June 30:           1999                 1998                    1997
          -------------------        -----------         -----------            -------------
<S>                                  <C>                 <C>                    <C>

          Net loss:
            As reported              $ (892,137)         $  (488,485)           $ (1,391,830)

            Pro forma                (1,220,337)            (649,562)             (1,452,962)

          Basic and diluted net loss per share:
            As reported              $     (.53)         $      (.29)           $       (.98)
            Pro forma                $     (.72)         $      (.39)           $      (1.03)
</TABLE>

The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:

                                                       June 30,
                                           -----------------------------------
                                           1999          1998         1997
                                           ----          ----         ----

        Risk-free interest rate            4.86%              6.56%        6.70%
        Expected lives                     6.27                 10           10
        Expected volatility                82.7%              96.2%        80.4%
        Expected dividend yields              0%                 0%           0%


                                      -16-

<PAGE>


9.   COMMITMENTS AND CONTINGENCIES :

Rent

The Company is obligated through August 2003 under several non-cancelable
long-term operating leases covering office, factory and warehouse facilities.
Minimum annual rentals under leases are as follows:

          Year Ending June 30:
               2000                      $     130,405
               2001                            141,583
               2002                            150,525
               2003                            155,741
               2004                             26,081
                                         -------------
                   Total                 $     604,335
                                         =============

Rent expense, including month-to-month rentals, was approximately $341,000,
$412,000 and $289,000 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.

Employment Agreements

The Company has employment agreements with three of its officers which commenced
on July 1, 1995. On March 1, 1997, these officers were appointed to new
positions with certain changes to their agreements and two new officers were
elected. The following is a summary of these employment agreements as of June
30, 1999:

              Officer                           Expiration Date    Annual Salary

      President (a)                             July 1, 2001         $175,000
      Senior Vice-President (b)                 July 1, 2001         $ 50,000
      Senior Vice-President and Secretary (c)   July 1, 2001         $ 40,000
      Vice-President of Finance                 January 31, 2001     $106,000
      Vice-President of Manufacturing           January 31, 2001     $110,000


(a)  This officer is entitled to a bonus of 3 1/3% of the Company's income
     before taxes and interest and a bonus of 3/4% of net sales in excess of
     $20,500,000.

(b)  This officer is entitled to a bonus of 3 1/3% of the Company's income
     before taxes and interest.

(c)  This officer is entitled to a bonus of 3 1/3% of the Company's income
     before taxes and interest.

Each of the agreements provides for minimum annual increases of 10%, commencing
at various dates, and has automatic renewal provisions.

In addition, should an unrelated party obtain more than 20% of the Company's
then outstanding stock, other than by transactions initiated by the Company, the
following will occur for three of the officers:

     (a)  Each will be paid a bonus equal to their minimum base salary for the
          next three years

     (b)  All rights (options, warrants, etc.) will become immediately vested
          and exercisable

For the remaining two officers, should a majority of the Board of Directors be
replaced, other than by voluntary resignation or their demise, the employees can
terminate their agreements within six months of such occurrence and receive a
one-time bonus of three times their current salary.


                                      -17-

<PAGE>


All bonuses for the years ended June 30, 1999, 1998 and 1997 have been waived
and the bonuses based on income before taxes and interest have been waived
through June 30, 2000.

Stock Buy-Back Plan

On Septebmer 9, 1999, the Company's Board of Directors approved a buy-back plan
of up to 320,000 shares of the Company's common stock, to be purchased over the
next two years at the discretion of the Company. Congress has authorized the
Company to expend up to $400,000 for such purchase. No shares have been
purchased to date.

10.   PROFIT SHARING PLAN:

The Company's qualified profit sharing plan for eligible full-time employees
includes a 401(k) salary deferral feature that requires a matching contribution
from the Company of up to $500 per employee for the 401(k) feature and provides
for discretionary profit sharing contributions by the Company, as approved by
its Board of Directors. Contribution expense was approximately $ 18,400, $15,700
and $6,900 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.

11.  LITIGATION:

At June 30, 1999, the Company, together with a multitude of other defendants,
was a defendant in approximately 3,800 lawsuits, in actions by approximately
8,500 first party plaintiffs alleging exposure to asbestos and products
containing asbestos sold by the Company over unspecified periods of time.

At June 30, 1999, and since 1981, the Company estimates approximately 4,450
actions on behalf of approximately 16,000 first-party plaintiffs have been
instituted against it for asbestos-related claims, and that approximately 650
actions and the claims of approximately 7,500 plaintiffs have been terminated
(the foregoing numbers assume the consummation of pending settlements). The
Company estimates that, with the exception of defense costs, a total of
approximately $ 1,800,000 has been agreed to in settlements to date with regards
to the terminated actions on behalf of the Company, of which all but
approximately $ 38,000 has been paid by the Company's insurance carriers. At
June 30, 1999, the Company had paid less than $40,000 for legal and defense
costs, to counsel appointed by the insurance carriers to defend it.

The Company entered into an agreement with its primary insurance carriers,
whereby its liability is limited to 12% of the cost of the defense liability and
17% of the settlement claim of certain litigation. The agreement, which is
subject to the policy limitations on each insurance policy, may be terminated at
any time upon 90 days notice by any of the parties, provided that termination
may not be effective as to any asbestos action that has already been placed on
the trial calendar, unless it has a scheduled trial date more than 12 months
from the date the notice is given. In May 1991, the Company reached an agreement
with Mount Vernon Fire Insurance Company ("Mount Vernon"), one of its primary
insurance carriers, with respect to its pending and future asbestos litigation.
Mount Vernon agreed to contribute 6.25% to the Company's defense costs and 6.25%
to its indemnity costs for so long a period of time as $100,000 in aggregate has
not been paid for indemnity costs. This agreement applies only to the period
Mount Vernon provided insurance coverage, which was between April 1, 1968 and
April 1, 1969. However, because past results of settlements and defense costs
are not necessarily indicative of future settlements and defense costs, and
because, as of this date, management is still unable to fully ascertain the
extent of insurance coverage, neither management nor counsel is able to predict
the outcome of these matters or the range of any potential liability that might
result. In addition, based on past history, management believes it is likely
that there will be additional asbestos actions against the Company.

The Company is party to other product liability litigation arising in the
ordinary course of business for which management feels it has adequate insurance
coverage.


                                      -18-

<PAGE>


After consultation with counsel, the Company considers that its ultimate
liability, if any, after available insurance coverage, in the majority of these
matters, would not have a material adverse effect upon the Company's financial
position. However, there can be no assurances that the Company's insurance
coverage will adequately cover these cases, or whether the Company's insurance
will provide coverage for punitive damages should they be awarded.

12.  ACQUISITION OF GLOVE MANUFACTURING BUSINESS:

In April 1997, the Company, through Eastco Glove Technologies, Inc. (a
newly-formed, wholly-owned subsidiary), acquired all the common stock of
Protective Knitting, Inc. ("PKI"), and certain machinery, equipment and
inventory from a company related to PKI. The purchase price was approximately
$1,387,000, which was recorded as follows:

       Inventory                                           $      139,000
       Machinery and equipment                                    794,000
       Excess of cost over net assets acquired                    454,000
                                                           --------------
                                                           $    1,387,000
                                                           ==============


In connection with this purchase, the Company borrowed $440,000 from Congress,
issued 100,000 shares of its common stock valued at approximately $412,000 and
agreed to make additional payments to PKI's former owners over the following
three to five years, which aggregates at least $240,000. The remaining purchase
price, including closing costs, was paid in cash. The acquisition was accounted
for as a purchase transaction. The operations of PKI prior to the acquisition
were not material in relation to those of the Company.


                                      -19-

<PAGE>


                                                                     SCHEDULE II


                    WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)

                     YEARS ENDED JUNE 30,1999, 1998 AND 1997


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
             Column A                          Column B              Column C          Column D          Column E
                                                                     Additions
-----------------------------------------------------------------------------------------------------------------
                                              Balance at          Charged to costs                       Balance at
            Description                   beginning of period      and expenses       Deductions (1)   end of period
-----------------------------------------------------------------------------------------------------------------
              1999
              ----
<S>                                            <C>                    <C>               <C>               <C>
Allowance for doubtful accounts                $75,000                $46,000           $48,000           $73,000
-----------------------------------------------------------------------------------------------------------------
              1998
              ----
Allowance for doubtful accounts                $59,000                $16,000           $  --             $75,000
-----------------------------------------------------------------------------------------------------------------
              1997
              ----
Allowance for doubtful accounts                $87,000                $  --             $28,000           $59,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Deductions relate to uncollectible accounts charged off to valuation
     accounts, net of recoveries.


This schedule should be read in conjunction with the accompanying financial
statements and notes thereto.


                                      -20-
<PAGE>


Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     Reference  is made to Item 4 of the Form 8-K dated June 4, 1998,  and filed
by EDGAR on June 4, 1998, which is incorporated by reference herein.


                                    PART III

Item 10, Item 11, Item 12 and Item 13 (DIRECTORS  AND EXECUTIVE  OFFICERS OF THE
REGISTRANT,  EXECUTIVE  COMPENSATION,  SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND  MANAGEMENT,  and CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS,
respectively),  will be incorporated in the  registrant's  Proxy Statement to be
filed  within  120 days of June 30,  1999,  and will be  incorporated  herein by
reference.

<PAGE>


Item 14.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  The  following   exhibits  are   incorporated   by  reference  to  the
registrant's  Registration  Statement on Form SB-2 (No. 333-09517),  as filed on
August 2, 1996, and as amended:

Exhibit       Description of Exhibit
-------       ----------------------
1.01          Form of Standby Agreement (with Royce Investment Group Inc.)
3.01          Certificate of Incorporation, as amended
3.01.1        Certificate of Amendment to Certificate of Incorporation filed
              August 12, 1996
3.01.2        Certificate of Amendment to Certificate of Incorporation dated
              February 15, 1989
3.02          By-Laws
3.02.1        Amendments to By-Laws adopted September, 1996
4.05          Form of Class B Warrant Certificate (filed as Exhibit 4.04)
4.06          Form of Warrant Agency Agreement for Class B Warrants between
               the registrant and American Stock Transfer and Trust Co.  (filed
              as Exhibit 4.05)
4.07          Form of Underwriters (Royce Investment Group Inc.)  Warrant
              filed as Exhibit 4.06)
10.01         Employment Agreement with Alan Densen,
              dated as of July 1, 1995
10.02         Employment Agreement with Lawrence Densen,
              dated as of July 1, 1995
10.03         Employment Agreement with Anthony Towell,
              dated as of July 1, 1995
10.05         Amendment to Financing Agreements with Congress dated July,
              1996
10.07         Form of Modification Agreement to Employment Agreements with
              Alan Densen, Lawrence Densen and Anthony Towell and Waiver
99.01         1996 Incentive Stock Option Plan
              as amended to date
99.02         1996 Non-Qualified Stock Option Plan
              as amended to date
99.03         Form of Warrants  held by Anthony  Towell  dated  January 31, 1994
              (and whose exercise date has been extended to October 10, 1999)
99.04         Form of Option Agreements Granted as of
              January 20, 1995, with Alan Densen, Anthony
              Towell and Lawrence Densen
99.06         Product liability primary insurance
              coverage for asbestos
99.07         Product liability excess insurance
              coverage for asbestos
99.08         Insurance coverage for Puerto Rico
              Safety Equipment Corporation for asbestos
99.09         Defense and indemnity agreement dated March 26, 1990
99.10         Defense and indemnity agreement dated May, 1991
99.11         Letters between L'Abbate & Balkan, counsel for Eastco
              and Wilentz, Goldman & Spitzer, counsel for plaintiffs' attorneys,
              dated  February 3, 1994, and March 14,  1994,  respectively,  with
              respect to settlement of New York cases

<PAGE>


     The following  exhibits are incorporated by reference to Worksafe's  annual
reports on Form 10K for the periods indicated:

For the year ended June 30, 1991:
---------------------------------
10.04          Accounts  Financing  Agreement  (Security  Agreement),  Covenants
               Supplement to Accounts Financing Agreement (Security  Agreement),
               Inventory  Loan  Agreement and  Inventory and Equipment  Security
               Agreement  Supplement to Accounts Financing  Agreement  (Security
               Agreement)  executed as of October 1, 1991,  with Congress (filed
               as Exhibit 10.1)

For the year ended June 30, 1993:
---------------------------------
10.06          Exemption  of  Puerto  Rico  Safety  Equipment  Corporation  with
               respect to Puerto Rico taxes as amended to date

For the year ended June 30, 1998:
---------------------------------

99.05         Asbestos litigation as of June 30, 1998

              The following exhibits are incorporated by reference to Worksafe's
              Form 10- QSB for the quarterly period ended March 31, 1997:

10.01.1       Modification to employment  agreement with Alan Densen dated March
              1, 1997

10.02.1       Modification  to employment  agreement with Lawrence  Densen dated
              March 1, 1997

10.03.1       Modification  to employment  agreement  with Anthony  Towell dated
              March 1, 1997

10.08         Stock Exchange  Agreement  among Eastco Glove  Technologies  Inc.,
              Eastco Industrial Safety Corp.,  Steven Robins  and Phillip Robins
              dated April 17, 1997

10.09         Asset Purchase Agreement among PR Industries Inc., Steven
              Robins, Phillip Robins, Eastco Glove technologies Inc. and Eastco
              Industrial Safety Corp., dated April 17, 1997

10.10         Voting Trust agreement among Eastco  Industrial Safety Corp., Alan
              E. Densen,  Anthony  Towell,  Lawrence  Densen,  Steven Robins and
              Phillip Robins dated April 17, 1997

10.11         Employment  agreement with Arthur  Wasserspring  dated February 1,
              1997

10.12         Employment agreement with Richard Boyen dated February 1, 1997

10.13         Amendment #8 to Financing Agreements with Congress Financial
              Corp. dated April 17, 1997

     The following  exhibit is incorporated by reference to Worksafe's Form 10-Q
for the quarterly period ending September 30, 1998:

99.05.01      Asbestos  litigation  commenced during the quarterly period ending
              September 30, 1998

         The following exhibits are incorporated by reference to Worksafe's Form
10- Q for the quarterly period ending December 31, 1998:

3.01.3        Certificate of Amendment to Certificate of Incorporation filed
              December 17, 1998

99.06.0       (Also referred to as 99.06.02) Asbestos litigation commenced
              during the quarterly period ending December 31, 1998

         The following  exhibit is  incorporated by reference to Worksafe's Form
10-Q for the quarterly period ending March 31, 1999:

99.06.3       Asbestos  litigation  commenced  for the  quarterly  period ending
              March 31, 1999

     The following exhibits are incorporated by reference to Worksafe's form 8-K
filed on January 26, 1999:

10.14         Asset Purchase Agreement between the registrant and Arbill
              Industries Inc. dated December 14, 1998 (without exhibits and
              schedules)

10.15         Amendment Number 9 to line of credit agreement with Congress

         The following exhibits are annexed hereto:

4.01          Form of  Common  Stock  Certificate

10.16         Amendment Number 10 to line of credit agreement with Congress

10.17         Amendment Number 11 to line of credit agreement with Congress

21.01         Subsidiaries  of the Registrant

27.01         Financial Data Schedule

99.12         Asbestos Litigation  commenced during the quarterly period ending
              June 30, 1999.

<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                         WORKSAFE INDUSTRIES INC.


                         By: /s/ LAWRENCE DENSEN          Date: October 12, 1999
                             ------------------------
                             LAWRENCE DENSEN
                             President and Chief Executive Officer


                         By: /s/ ARTHUR J. WASSERSPRING   Date: October 12, 1999
                             -------------------------
                             ARTHUR J. WASSERSPRING
                             Vice President of Finance and
                             Chief Financial Officer

     In  accordance  with the Exchange  Act,  this report has been signed by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

                         By: /s/ LAWRENCE DENSEN          Date: October 12, 1999
                             ------------------------
                             LAWRENCE DENSEN
                             Director


                         By: /s/ ALAN DENSEN              Date: October 12, 1999
                             ------------------------
                             ALAN DENSEN
                             Director

                         By: /s/ CHARLES HOLZBERG         Date: October 12, 1999
                             ------------------------
                             CHARLES HOLZBERG
                             Director

                         By: /s/ MARTIN FLEISHER          Date: October 12, 1999
                             ------------------------
                             MARTIN FLEISHER
                             Director

                         By: /s/ ANTHONY P. TOWELL        Date: October 12, 1999
                             ------------------------
                             ANTHONY P. TOWELL
                             Director

                         By: /s/ JAMES A. FAVIA           Date: October 12, 1999
                             ------------------------
                             JAMES A. FAVIA
                             Director

                         By: /s/ BRUCE FRIEDMAN           Date: October 12, 1999
                             ------------------------
                             BRUCE FRIEDMAN
                             Director