UNITED ~~STATES SECURITIES AND EXCHANGE COMMISSION~~ ~~Washington, D.C. 20549~~ STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~For the quarterly period ended June 30, 2005 or o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________~~

~~Commission~~For the quarterly ~~file~~period ~~number:~~ended ~~1-10184~~March ABATIX CORP. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 75-1908110 (I.R.S. Employer Identification No.) 8201 Eastpoint Drive31, ~~Suite 500, Dallas, Texas (Address of principal executive offices) 75227 (Zip Code) (214) 381-0322 (Registrant’s telephone number, including area code)~~2007

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

~~Yes~~[ ] Transition xReport NoPursuant oto Section 13 or 15(d) of the Securities Exchange Act of 1934

For ~~Indicate by check mark whether~~ the transition ~~registrant~~period isfrom an_____ ~~accelerated~~to ~~filer (as defined in Rule 12b-2 of the Exchange Act).~~ _____

~~Yes~~Commission file onumber: ~~No x~~1-10184

ABATIX CORP.

(Exact ~~Common~~ name ~~stock~~of ~~outstanding~~registrant atas ~~August~~specified 3,in ~~2005~~its ~~was 1,711,148.~~charter)

PART 1 – FINANCIAL INFORMATION

Delaware	75-1908110
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2400 Skyline Drive, Suite 400, Mesquite, Texas	75149
(Address of principal executive offices)	(Zip Code)

(214) 381-0322

(Registrant’s telephone number, including area code)

(Former name, address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ü] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ü]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ü]

Common stock outstanding at May 9, 2007 was 1,711,148.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

ABATIX CORP. AND SUBSIDIARY ~~Consolidated Balance Sheets~~

	June 30, 2005			December 31, 2004
	(Unaudited)
Assets
Current assets:
Cash	$	309,238		$	338,443
Trade accounts receivable, net of allowance for doubtful accounts of $517,065 in 2005 and $368,874 in 2004		9,552,584			9,303,140
Inventories		8,523,192			7,199,841
Prepaid expenses and other assets		697,049			680,745
Deferred income taxes		288,983			309,841
Receivables from employees		1,277			2,177
Total current assets		19,372,323			17,834,187
Property and equipment, net of accumulated depreciation of $2,748,712 in 2005 and $2,592,385 in 2004		980,090			987,694
Deferred income taxes		369,900			364,343
Receivables from employees		700			3,250
Other assets		81,995			82,450
	$	20,805,008		$	19,271,924
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable and current maturities of long term debt	$	5,898,171		$	5,539,736
Accounts payable		4,142,475			3,618,564
Accrued compensation		276,973			131,935
Other accrued expenses		929,304			1,015,473
Total current liabilities		11,246,923			10,305,708
Long term debt		43,841			—
Total liabilities		11,290,764			10,305,708
Stockholders’ equity:
Preferred stock - $1 par value, 500,000 shares authorized; none issued		—			—
Common stock - $.001 par value, 5,000,000 shares authorized; 2,437,314 shares issued in 2005 and 2004		2,437			2,437
Additional paid-in capital		2,574,560			2,574,560
Retained earnings		9,194,589			8,646,561
Treasury stock at cost, 726,166 common shares in 2005 and 2004 (note 4)		(2,257,342	)		(2,257,342	)
Total stockholders’ equity		9,514,244			8,966,216
Commitments and contingencies
	$	20,805,008		$	19,271,924

Consolidated Balance Sheets

Assets	March 31, 2007 (Unaudited)			December 31, 2006
Current assets:
Cash	$	222,002		$	151,311
Trade accounts receivable, net of allowance for doubtful accounts of $647,512 in 2007 and $731,569 in 2006		9,686,688			9,286,359
Inventories		9,244,406			9,773,334
Prepaid expenses and other assets		458,908			625,165
Deferred income taxes		530,937			614,558
Total current assets		20,142,941			20,450,727
Property and equipment, net of accumulated depreciation of $3,027,794 in 2007 and $3,042,677 in 2006		1,321,414			1,433,184
Deferred income taxes		358,944			346,942
Other assets		115,479			111,434
	$	21,938,778		$	22,342,287
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current maturities of long term debt	$	4,740,818		$	5,615,779
Accounts payable		3,414,473			3,523,849
Accrued compensation		332,917			190,996
Other accrued expenses		1,117,144			1,033,076
Total current liabilities		9,605,352			10,363,700
Long term debt		9,613			13,412
Total liabilities		9,614,965			10,377,112

Stockholders’ equity:
Preferred stock - $1 par value, 500,000 shares authorized; none issued		-			-
Common stock - $ .001 par value, 5,000,000 shares authorized; 2,437,314 shares issued in 2007 and 2006		2,437			2,437
Additional paid-in capital		2,574,560			2,574,560
Retained earnings		12,004,158			11,645,520
Treasury stock at cost, 726,166 common shares in 2007 and 2006		(2,257,342	)		(2,257,342	)
Total stockholders’ equity		12,323,813			11,965,175
Commitments and contingencies
	$	21,938,778		$	22,342,287

See accompanying notes to consolidated financial statements.

ABATIX CORP. AND SUBSIDIARY ~~Consolidated Statements of Operations (Unaudited)~~

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net sales	$	16,027,711		$	12,464,008		$	30,754,476		$	24,436,326
Cost of sales		(11,638,261	)		(9,118,573	)		(22,223,281	)		(17,880,789	)
Gross profit		4,389,450			3,345,435			8,531,195			6,555,537
Selling, general and administrative expenses		(3,739,536	)		(3,623,256	)		(7,492,249	)		(6,930,692	)
Operating profit (loss)		649,914			(277,821	)		1,038,946			(375,155	)
Other expense:
Interest expense		(74,704	)		(52,494	)		(137,288	)		(99,231	)
Other income (expense), net		55			(71	)		2,123			(848	)
Earnings (loss) before income taxes		575,265			(330,386	)		903,781			(475,234	)
Income tax (expense) benefit		(225,552	)		127,649			(355,753	)		152,443
Net earnings (loss)	$	349,713		$	(202,737	)	$	548,028		$	(322,791	)
Basic and diluted earnings (loss) per common share	$	.20		$	(.12	)	$	.32		$	(.19	)
Basic and diluted weighted average shares outstanding (note 2)		1,711,148			1,711,148			1,711,148			1,711,148

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2007			2006
Net sales	$	17,257,511		$	16,606,330
Cost of sales		(12,084,432	)		(11,967,623	)
Gross profit		5,173,079			4,638,707

Selling, general and administrative expenses		(4,452,320	)		(4,152,885	)
Operating profit		720,759			485,822

Other income (expense):
Interest expense		(100,302	)		(130,280	)
Other, net		6,128			4,564
Earnings before income taxes		626,585			360,106

Income tax expense		(267,947	)		(140,509	)
Net earnings	$	358,638		$	219,597

Basic and diluted net earnings per common share	$	.21		$	.13

Basic and diluted weighted average shares outstanding (note 2)		1,711,148			1,711,148

See accompanying notes to consolidated financial statements.

ABATIX CORP. AND SUBSIDIARY ~~Consolidated Statements of Cash Flows (Unaudited)~~

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net earnings (loss)	$	548,028		$	(322,791	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		211,145			246,712
Deferred income taxes		15,301			(43,307	)
Provision for losses on receivables		315,025			188,542
Provision for obsolescence of inventory		139,627			74,623
Loss on disposal of assets		11,078			1,262
Changes in operating assets and liabilities:
Receivables		(564,469	)		(804,271	)
Inventories		(1,462,978	)		(961,829	)
Prepaid expenses and other assets		(16,304	)		(22,679	)
Refundable income taxes		—			(173,355	)
Other assets, primarily deposits		455			—
Accounts payable		523,911			346,630
Accrued expenses		58,869			128,864
Net cash used in operating activities		(220,312	)		(1,341,599	)
Cash flows from investing activities:
Purchase of property and equipment		(215,319	)		(138,226	)
Proceeds from disposal of assets		700			—
Advances to employees		(530	)		(5,302	)
Collection of advances to employees		3,980			2,550
Net cash used in investing activities		(211,169	)		(140,978	)
Cash flows from financing activities:
Borrowings on notes payable to bank		9,862,499			8,122,081
Repayments on notes payable to bank		(9,460,223	)		(6,006,336	)
Net cash provided by financing activities		402,276			2,115,745
Net (decrease) increase in cash		(29,205	)		633,168
Cash at beginning of period		338,443			176,078
Cash at end of period	$	309,238		$	809,246

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net earnings	$	358,638		$	219,597
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization		143,090			118,871
Deferred income taxes		71,619			(106,401	)
Provision for losses on receivables		27,561			83,842
Provision for obsolescence of inventory		29,886			34,260
(Gain) loss on disposal of assets		(4,567	)		551
Changes in operating assets and liabilities:
Receivables		(427,890	)		2,988,291
Inventories		499,042			684,913
Prepaid expenses and other assets		166,257			310,086
Other assets, primarily deposits		(4,045	)		(18,954	)
Accounts payable		(109,376	)		(627	)
Accrued expenses		225,989			(593,276	)
Net cash provided by operating activities		976,204			3,721,153

Cash flows from investing activities:
Purchase of property and equipment		(32,882	)		(52,726	)
Proceeds from the disposal of fixed assets		6,129			-
Advances to employees		(5,725	)		(363	)
Collection of advances to employees		5,725			1,022
Net cash used in investing activities		(26,753	)		(52,067	)

Cash flows from financing activities:
Borrowings on notes payable		5,666,026			3,259,179
Repayments on notes payable		(6,544,786	)		(7,218,231	)
Net cash used in financing activities		(878,760	)		(3,959,052	)

Net increase (decrease) in cash		70,691			(289,966	)
Cash at beginning of period		151,311			790,097
Cash at end of period	$	222,002		$	500,131


Supplemental Information:
Cash paid for interest	$	101,124		$	104,771
Cash paid for income taxes	$	7,437		$	537,700

See accompanying notes to consolidated financial statements.

ABATIX CORP. AND SUBSIDIARY ~~Notes to Consolidated Financial Statements (Unaudited)~~

Notes to Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation, General and Business

Abatix Corp. (“Abatix”) and subsidiary, (collectively, the “Company”") ~~markets~~market and distribute ~~distributes~~ personal protection and safety equipment, and durable and nondurable supplies to the environmental industry, the industrial ~~safety~~ industry, ~~the homeland security industry~~ and, combined with tools and tool supplies, the construction industry. ~~Sales~~ toAt ~~the~~March ~~environmental industry include sales to asbestos and lead abatement~~31, ~~water (including mold)~~2007, the Company ~~fire~~operated ~~and~~eight ~~smoke~~sales ~~restoration~~ and ~~hazardous~~distribution ~~materials~~centers ~~contractors. At~~in ~~June~~six 30states, ~~2005,~~ ~~the~~including our ~~Company~~Jacksonville, ~~operated~~Florida ~~seven~~office ~~sales~~which ~~and~~opened ~~distribution centers~~ in ~~five~~August ~~states~~2006. In response to the summer ~~2004~~2005 hurricanes ~~in Florida~~, the Company operated a temporary ~~distribution~~facility ~~center~~ in Ponchatoula, ~~Tampa~~Louisiana from ~~August~~September ~~2004~~2005 until ~~February~~August ~~2005~~2006. The Company’s wholly-owned subsidiary, International Enviroguard Systems, Inc. (“IESI”) imports disposable protective clothing products sold through the Company’s distribution channels and through other distributors.

The ~~Note 1 of the Notes to Consolidated Financial Statements included in the~~ Company’s ~~Form 10~~wholly-Kowned ~~for~~subsidiary, ~~the~~International ~~year~~Enviroguard ~~ended~~Systems, ~~December~~Inc. (“IESI”) ~~31,~~imports ~~2004~~disposable ~~contains~~protective aclothing ~~description~~products ofsold ~~the~~through the Company’s ~~significant~~distribution ~~accounting~~channels ~~policies. Since December 31, 2004, there have been no changes in our critical accounting policies~~ and nothrough ~~significant~~other ~~changes to our assumptions and estimates related to them~~distributors.

Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2006 contains a description of the Company’s significant accounting policies. Since December 31, 2006, there have been no changes in our critical accounting policies and no significant changes to our assumptions and estimates related to them, except as discussed in the following paragraph.

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) 48, which was adopted on January 1, 2007, the Company accrues for interest and penalties associated with income tax liabilities in accordance with applicable tax laws. There was no material impact from the adoption of FIN 48. Any charges for interest and penalties related to income tax liabilities are recorded in the provision for income taxes on the Consolidated Statements of Operations. The Company’s U.S. federal income tax returns have been audited through 2001 and all federal assessments of additional taxes, interest and penalties have been paid. The Company’s tax years 2002 - 2006 remain subject to state (primarily Texas, California and Arizona) and local audits from all jurisdictions from which we operated during those periods. There are no unrealized tax benefits as of March 31, 2007, nor does the Company anticipate any change in its unrealized tax benefits during the next twelve months.

As more fully described in Note 11 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2006, the Company adopted Staff Accounting Bulletin (“SAB”) No. 108 effective January 1, 2006. During the fourth quarter of 2006, the Company determined that an immaterial portion of the consideration received from vendors should be applied as a reduction of the carrying cost of inventory rather than as an immediate reduction of cost of sales. In accordance with the provisions of SAB No. 108, the Company elected to adjust previously reported financial statements for immaterial errors the next time they are presented. Therefore, the financial statements herein for the first quarter of 2006 have been adjusted for the application of vendor consideration to the carrying cost of inventory.

The accompanying consolidated financial statements are prepared in accordance with the instructions to Form 10-Q, are unaudited and do not include all the information and disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. All adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of results of operations for a full year.

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

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

(2) Earnings per Share

The ~~Basic~~ Company ~~earnings~~has ~~per~~a ~~share~~stockholder-approved isequity ~~calculated~~compensation ~~using~~plan ~~the~~(“2006 ~~weighted~~Stock Plan”). The maximum ~~average~~ number of ~~common~~equivalent shares ~~outstanding~~of ~~during~~Common ~~each~~Stock ~~period,~~authorized ~~while~~for ~~diluted~~issuance and issuable ~~earnings~~in ~~per~~various ~~share~~forms ~~includes~~under the ~~effects~~2006 ofStock ~~all~~Plan ~~dilutive~~is ~~potential common shares. For the~~ three- ~~and~~hundred ~~six-month periods ended June 30~~thousand (300,000) ~~2005 and 2004~~shares, ~~there~~although ~~were~~ no ~~dilutive~~shares ~~securities~~have ~~outstanding~~been issued.

Basic ~~(3) Supplemental~~ earnings ~~Information~~per ~~for~~share ~~Statements~~is calculated using the weighted average number of ~~Cash~~common shares ~~Flows~~outstanding during each period, while diluted earnings per share includes the effects of all dilutive potential common shares. For the three month period ended March 31, 2007 and 2006, there were no dilutive securities outstanding.

~~The Company paid interest of $134,897 and $95,813 in the six months ended June 30, 2005 and 2004, respectively. The Company paid income taxes of $394,733 and $32,230 in the six months ended June~~(3) ~~30, 2005 and 2004, respectively.~~Segment Information

Identification of operating segments is based principally upon differences in the types and distribution channel of products. The Company’s reportable segments consist of Abatix and IESI. The Abatix operating segment includes the Company’s corporate operations, aggregated operating branches (4including any temporary facilities) ~~Stockholders~~, which are principally engaged in distributing environmental, safety and construction equipment and supplies to contractors and manufacturing facilities in the west, southwest and southeast portions of the United States. The IESI operating segment, which consists of the Company’s ~~Equity~~wholly-owned subsidiary, International Enviroguard Systems, Inc., is engaged in the wholesale distribution of disposable protective clothing to companies similar to, and including, Abatix. The IESI operating segment distributes products throughout the United States and the Caribbean.

The Board of Directors had previously authorized the acquisition of up to 726,500 shares of the Company’s common stock. To date, the Company has acquired 726,166 shares (the last purchase was in 1999) that are held as treasury shares. In May 2005, the Board of Directors officially closed this repurchased plan.

(5) Segment Information

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

The accounting policies are consistent in each operating segment as described in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2004. The Company evaluates the performance of its operating segments based on operating profit after a charge for the carrying value of inventory and accounts receivable. Intersegment sales are at agreed upon pricing and intersegment profits are eliminated in consolidation.

The ~~Summarized~~ accounting ~~financial~~policies ~~information~~are ~~concerning~~consistent in each operating segment as described in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s ~~reportable~~Form 10-K for the year ended December 31, 2006. The Company evaluates the performance of its operating segments isbased ~~shown~~on inoperating profit after a charge for the ~~following~~carrying ~~table~~value of inventory and accounts receivable. ~~There~~ Intersegment sales are noat ~~other~~agreed ~~significant~~upon ~~noncash~~pricing ~~items~~and intersegment profits are eliminated in consolidation.

	Abatix			IESI		Totals
Three months ended June 30, 2005
Sales from external customers	$	15,105,066		$	922,645	$	16,027,711
Intersegment sales		—			146,976		146,976
Interest expense		74,704			—		74,704
Depreciation expense		104,351			1,784		106,135
Segment profit		426,304			219,317		645,621
Capital expenditures		134,467			—		134,467
Three months ended June 30, 2004
Sales from external customers	$	11,882,488		$	581,520	$	12,464,008
Intersegment sales		—			125,555		125,555
Interest expense		52,494			—		52,494
Depreciation expense		122,955			1,387		124,342
Segment (loss) profit		(378,016	)		99,860		(278,156	)
Capital expenditures		108,927			8,606		117,533
Six months ended June 30, 2005
Sales from external customers	$	28,841,104		$	1,913,372	$	30,754,476
Intersegment sales		—			290,288		290,288
Interest expense		137,288			—		137,288
Depreciation expense		207,566			3,579		211,145
Segment profit		526,486			491,696		1,018,182
Capital expenditures		213,617			1,702		215,319
Six months ended June 30, 2004
Sales from external customers	$	23,256,151		$	1,180,175	$	24,436,326
Intersegment sales		—			212,192		212,192
Interest expense		99,231			—		99,231
Depreciation expense		244,221			2,491		246,712
Segment (loss) profit		(574,965	)		181,764		(393,201	)
Capital expenditures		129,620			8,606		138,226
Segment Assets
June 30, 2005	$	19,125,295		$	1,807,651	$	20,932,946
December 31, 2004		17,679,153			1,757,079		19,436,232

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

	Abatix		IESI		Totals
Three months ended March 31, 2007
Sales from external customers	$	16,215,194	$	1,042,317	$	17,257,511
Intersegment sales		283		332,931		333,214
Interest expense		100,302		-		100,302
Depreciation and amortization		134,935		8,155		143,090
Segment profit		539,703		191,468		731,171
Capital expenditures		28,200		4,682		32,882

Three months ended March 31, 2006
Sales from external customers	$	15,992,430	$	613,900	$	16,606,330
Intersegment sales		-		221,953		221,953
Interest expense		130,280		-		130,280
Depreciation and amortization		116,894		1,977		118,871
Segment profit		299,873		176,181		476,054
Capital expenditures		52,726		-		52,726

Segment Assets
March 31, 2007	$	20,297,379	$	1,806,152	$	22,103,531
December 31, 2006		20,592,919		1,877,793		22,470,712

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

	Three Months Ended June 30,						Six Months Ended June 30,
	March 31,
	2005			2004			2005		2004
	2007			2006
Profit (loss) for reportable segments	$	645,621		$	(278,156	)	$	1,018,182	$	(393,201	)
Profit for reportable segments	$	731,171		$	476,054
Elimination of intersegment profits		4(10,~~293~~412	)		~~335~~9,768			~~20,764~~		~~18,046~~
Operating profit (loss)	$	649,914		$	(277,821	)	$	1,038,946	$	(375,155	)
Operating profit	$	720,759		$	485,822
		March 31,			December 31,
		2007			2006
Total assets for reportable segments	$	22,103,531		$	22,470,712
Elimination of intersegment assets		(164,753	)		(128,425	)
Total assets	$	21,938,778		$	22,342,287

	June 30, 2005			December 31, 2004
Total assets for reportable segments	$	20,932,946		$	19,436,232
Elimination of intersegment assets		(127,938	)		(164,308	)
Total assets	$	20,805,008		$	19,271,924

The Company’s sales, substantially all of which are on an unsecured credit basis, are to various customers from its permanent distribution centers in Texas, California, Arizona, Washington, Nevada and Florida and its temporary facilities, if any. The Company evaluates credit risks on an individual basis before extending credit to its customers and it believes the allowance for doubtful accounts adequately provides for loss on uncollectible accounts. During the three months ended March 31, 2007 and 2006, no single customer accounted for more than 10% of net sales, although sales to our top ten customers were approximately 17% and 20% of consolidated net sales in those periods, respectively. In addition, sales to environmental contractors were approximately 41% and 42% for the three months ended March 31, 2007 and 2006, respectively. A loss of one of the top customers or a reduction in spending on environmental projects could significantly impact sales.

The receivables ~~Company’s~~balance ~~sales,~~is ~~substantially~~comprised ~~all~~ of ~~which~~more ~~are~~than on2,500 anaccounts. ~~unsecured~~The ~~credit~~largest customer ~~basis,~~owing ~~are~~money to ~~various~~the ~~customers~~Company ~~from~~represented ~~its~~approximately ~~distribution~~7% ~~centers~~of inthe ~~Texas,~~total receivables ~~California~~balance as of March 31, ~~Arizona~~2007, ~~Washington~~while ~~and~~the ~~Nevada. The~~top ~~Company~~ten ~~evaluates~~companies represented ~~credit~~approximately ~~risks~~26%. onWhile anmost ~~individual~~of ~~basis~~these ~~before~~accounts ~~extending~~at ~~credit~~March to31, ~~its~~2007 have been customers ~~and~~of ~~it believes~~ the ~~allowance~~Company for ~~doubtful~~more ~~accounts~~than ~~adequately~~three ~~provides~~years, ~~for~~with ~~loss~~several being customers onof ~~uncollectible accounts. During~~ the ~~six~~Company ~~months~~for ~~ended~~more ~~June~~than ~~30,~~ten ~~2005 and 2004~~years, nonon-payment ~~single~~by ~~customer~~any ~~accounted~~one ~~for more than 10%~~ of these ~~net~~accounts ~~sales,~~would ~~although~~have ~~sales~~a tosignificant ~~environmental~~negative ~~contractors~~impact ~~were~~on ~~approximately~~the ~~45%~~cash ~~and~~flows ~~42%~~ of the Company. ~~consolidated~~During ~~net~~times ~~sales~~of indisasters, ~~those~~the ~~periods,~~concentration ~~respectively. A~~of ~~reduction~~balances in ~~spending~~a onfew customers ~~environmental projects~~ could be significantly ~~impact sales~~larger.

Although no vendor accounted for more than 10% of the Company’s sales, three product classes accounted for greater than 10% of sales for the first six months of 2005. The first product class accounted for approximately 17% and 16% of net sales in the first six months of 2005 and 2004, respectively. A major component of these products is petroleum. Increases in oil prices or shortages in supply could significantly impact sales and the Company’s ability to supply its customers with certain products at a reasonable price. The second product class accounted for approximately 14% and 12% of net sales in the first six months of 2005 and 2004, respectively. A majority of these products are produced internationally. Although political climates could impact our ability to sell these products, sourcing of these products is available from many countries and many vendors, none of which control the market.

(6) Contingencies

The Company was named in several class action lawsuits. These complaints generally allege that defendants violated the Securities and Exchange Act of 1934 by allegedly making a series of materially false and purportedly misleading statements concerning Abatix’s business agreement with the Goodwin Group LLC and, as a result, the price of the Abatix stock was allegedly artificially inflated causing plaintiff and other members of the class to allegedly suffer damages.

Although ~~All~~ no vendor accounted for more than 10% of the ~~lawsuits~~Company’s ~~were~~sales, ~~transferred~~the totop ~~one~~ten vendors ~~Federal~~represented ~~District~~38% ~~Court~~of sales in both the ~~Northern~~first ~~District~~three months of ~~Texas,~~2007 ~~Dallas~~and 2006. ~~Division~~In ~~(“Federal~~addition, ~~Court”)~~three ~~and~~product ~~have~~classes ~~been~~(groupings ~~consolidated~~of ~~into~~similar aproducts) accounted ~~single~~for ~~case~~greater ~~under~~than ~~Cause~~10% ~~No. 3-04CV-872-D;~~of ~~Family~~sales ~~Medicine~~for ~~Specialists,~~the etfirst althree v.months ~~Abatix,~~of ~~et al~~2007 or 2006. ~~(“Class Action”).~~

On· ~~May~~The ~~27,~~first ~~2004~~product class, ~~the~~plastic ~~officers~~sheeting and ~~directors~~bags, ofaccounted ~~Abatix~~for ~~Corp.~~approximately ~~were~~17% ~~named~~and as19% ~~defendants~~of innet asales ~~lawsuit filed~~ in the ~~District~~first ~~Court~~three months of ~~Dallas~~2007 ~~County,~~and ~~Texas~~2006, ~~162nd Judicial District (“State District Court,” and when combined with the Federal Court as “Courts”) styled Daniel M~~respectively. ~~Johnson Plaintiff v. Terry Shaver; Frank Cinatl IV; Gary L Cox; Donald N. Black; Eric~~ A. ~~Young;~~major ~~and~~component A.of ~~David~~these ~~Cook;~~products ~~Defendants~~is vpetroleum. ~~Abatix~~Increases ~~Corp.~~in ~~Nominal~~oil ~~Defendant~~prices ~~(Cause~~or ~~No. 2004-04-4841)~~shortages ~~(“Derivative~~in ~~Suit”),~~supply ~~although~~could ~~Plaintiff~~significantly ~~has~~impact ~~dismissed~~sales ~~A. David Cook from this case. This suit is a stockholder derivative action that alleges that all of the defendants breached certain fiduciary duties~~ and ~~abused their control of Abatix. Further,~~ the ~~plaintiff~~Company’s ~~seeks~~ability ~~contribution~~to ~~and~~supply ~~indemnification. In~~its ~~addition,~~customers ~~this~~with ~~petition~~certain ~~alleges~~products ~~that~~at ~~Donald~~a ~~Black,~~reasonable ~~an outside board of director of Abatix, breached his fiduciary duties by selling securities based on allegedly material, non-public information and by allegedly misappropriation of information~~price.

On· ~~May~~The 6,second ~~2005~~product class, ~~the~~disposable ~~Company~~clothing, ~~executed~~accounted afor ~~Stipulation~~approximately 16% and ~~Agreement~~14% of ~~Settlement~~net tosales ~~settle the Class Action (“Class Stipulation”) now pending~~ in the ~~Federal~~first ~~Court. On~~three ~~May~~months ~~9, 2005, the Company executed a Stipulation~~ of ~~Compromise~~2007 and ~~Settlement to settle the Derivative Suit (“Derivative Stipulation~~2006,” ~~and with the Class Stipulation, “Stipulations”) now pending in the State District Court~~respectively. ~~While~~ ~~the~~A ~~Company~~majority ~~was~~of ~~prepared~~these toproducts ~~vigorously~~are ~~defend~~produced ~~itself and the officers and directors against the allegations~~internationally, ~~the~~predominantly ~~Company agreed to settle the Class Action for $900,000~~ in cash and will adhere to certain corporate governance provisions to settle the Derivative Suit, so that management and its employees can concentrate their full attention on growing the business by eliminating the distraction of further protracted litigationChina. In ~~addition,~~Changes ~~the Company agreed to the Stipulations~~ in ~~order to eliminate~~ the ~~litigation~~political ~~risk~~or ~~and expense. The~~economic ~~settlement~~climates ~~funds~~or ~~are~~other ~~expected~~events ~~to be covered by the Company’s insurance policy~~(e. ~~Accordingly~~g., ~~there~~Avian ~~are~~Bird noFlu, ~~expected~~SARS, ~~charges~~etc.) ~~against~~could ~~the~~impact ~~Company’s~~our ~~earnings~~ability ~~related~~ to ~~this~~obtain ~~matter. These~~these ~~proposed~~products ~~settlements~~from ~~expressly~~our ~~provide~~current ~~that the Company and its officers or directors do not admit or concede any violation of law or wrongdoing of any kind~~source.

On· ~~May~~The ~~16,~~third ~~2005~~product class, ~~the~~abatement ~~State~~and ~~District~~restoration ~~Court~~equipment, ~~signed~~accounted ~~the~~for ~~Order~~approximately ~~Regarding~~10% ~~Proposed Derivative Action Settlement, Settlement Hearing~~ and ~~Notice~~9% ~~Thereof which allows the notification~~ of ~~the~~net ~~proposed~~sales ~~settlement~~in to the ~~stockholders~~first ofthree ~~record~~months as of ~~May~~2007 9,and ~~2005~~2006 respectively. In ~~addition,~~This ~~August~~product ~~11,~~class ~~2005 was established as the date for, among other things, determining whether the proposed settlement~~ is ~~fair,~~made ~~reasonable~~up ~~and in the best interest~~ of ~~the~~many ~~nominal~~vendors ~~defendant,~~with ~~the~~many ~~Company,~~dissimilar ~~and its stockholders and whether it should be approved by the State District Court~~products.

Item On 2. ~~May~~Management's ~~17,~~Discussion ~~2005, the Federal Court signed the Preliminary Order for Notice~~ and ~~Hearing~~Analysis ~~in Connection with Settlement Proceedings which allows the notification~~ of ~~the~~Financial ~~proposed~~Condition ~~settlement to the class. In addition, August 11, 2005 was established as the date for, among other things, determining whether the proposed settlement is fair, reasonable~~ and ~~adequate~~Results of Operations.

It is the understanding of the Company that the counsel for the plaintiffs in both the Class Action and the Derivative Suit have complied with the applicable procedures to notify the appropriate parties. It is also the Company’s understanding that one class member has opted out of the proposed settlement in the Class Action and that no members of the Class Action or the Derivative Suit have objected to the proposed settlement. The proposed settlement remains subject to final approval by the Courts. Members of the class are defined as purchasers of Abatix common stock from 5:05 p.m. Eastern Standard Time on April 14, 2004 through and including April 30, 2004.

Other than the applicable policy deductible and the fees and expenses incurred prior to provision of notice to the insurance carrier, the insurance company has paid for the defense costs related to the Class Action and Derivative Suit. At this time, it is not possible to predict whether the Company will have any additional liability or to estimate additional costs that may be incurred with such actions that may not be covered by any applicable insurance policy.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Introduction

The following information should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, ~~2004~~ 2006.

The Company is a supplier of mainly safety related products and tools to workers involved in the ~~manufacturing~~construction, ~~construction~~manufacturing and ~~homeland~~environmental ~~security~~ markets. From eight ~~seven~~ fully-stocked distribution facilities/sales offices in the ~~western~~west, southwest and ~~southwestern~~southeast ~~part~~parts of the United States, the Company primarily distributes equipment and commodity products to the local geographic areas surrounding its facilities.

IESI, the Company’s wholly-owned subsidiary, primarily imports disposable clothing from China. IESI sells their product throughout the United States and the Caribbean through the Abatix distribution channels, as well as ~~through~~ other distributors.

The Company’s management believes that hiring additional sales staff, controlling costs, geographic expansion, diversification of customer base and responding effectively to competitive challenges are important to the long-term success of the Company.

•

Sales Staff – We sell our products based on relationships, among other things. Our ability to hire, train and retain staff, especially in the sales and customer service area is critical to our long-term success. Our current competitive compensation and benefits, including updating these items when necessary, as well as a good work-life balance are critical to this area.

•

Controlling Costs – To maintain our competitive position by providing competitively priced products while also maintaining our profitability, we must control our costs and effectively utilize our assets. As we did in 2004, we are continuing to review our selling, general and administrative costs and making adjustments where appropriate. Our ability to control costs can be affected by outside factors, such as the price of oil or increases in interest rates. In addition, the cost to initially comply with Section 404 of the Sarbanes-Oxley Act by the end of 2006 is expected to be $500,000, approximately 3% of our annualized selling, general and administrative expenses. This cost would negate most of our cost reduction efforts to date.

Sales Staff - We sell our products based on relationships, among other things. Our ability to hire, train and retain staff, especially in the sales and customer service area is critical to our long-term success. Competitive compensation and benefits as well as a good work-life balance are critical to this area.

Controlling Costs - To maintain our competitive position by providing competitively priced products while also maintaining our profitability, we must control our costs and effectively utilize our assets. We continuously review our general and administrative costs making adjustments where appropriate. Our ability to control costs can be affected by outside factors, such as the price of oil or other raw materials or increases in interest rates. In addition, the cost to initially comply with Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”) is expected to total more than $800,000 by December 31, 2007. This cost will most likely negate any of our cost reduction efforts.

Geographic Expansion - The Company needs to leverage our infrastructure and knowledge over a larger revenue base. While the Company intends to focus on growing revenues in its existing locations, the Company will also explore geographic expansion. This expansion could come in the form of opening a new location in a new geographic market or acquiring an existing company in a market where the Company currently does not operate. These possibilities require significant planning time and financial resources which could limit our ability to implement.

Customer Base - While no customer represents 10% or more of the Company’s revenues, there are several large customers, especially at IESI. The loss of, or significant decline in revenues from, one or more of those customers would have an impact on our revenue and profitability. The Company intends to pursue additional customers in an attempt to lessen the impact of any one customer and improve on existing customer relationships. While we intend to market our customer service in an attempt to obtain higher margins, obtaining market share generally has a negative effect on product margins.

Competitive Environment - Past results and future prospects are significantly affected by the competitive environment in which we operate. We experience intense competition for sales of our products in all of our markets. Our competition ranges from small owner-operator distributors to large national companies selling to the construction and/or industrial industries. Typically, the smaller companies are built around very strong relationships which make it hard to penetrate, while the larger companies have a distinct geographic and price advantage.

•In addition ~~Geographic Expansion – The Company needs~~ to ~~leverage our infrastructure and knowledge over a larger revenue base. While~~ the ~~Company~~above ~~intends~~mentioned tocritical ~~focus~~success ~~on growing revenues in its existing locations~~factors, the Company will also explore geographic expansion. This expansion could come in the form of opening a new location in a new geographic market or acquiring an existing company in a market where we currently do not operate. Both of these possibilities require significant ~~planning~~short-term boosts ~~time and financial resources. • Customer Base – While no customer represents 10% or more~~ of ~~the Company’s revenues~~revenue, ~~there~~like ~~are~~the ~~several~~hurricanes ~~large customers, especially at IESI. The loss~~ of ~~one~~2004 ~~or more of those customers would have a severe impact on our business. The Company intends to pursue additional customers~~ and ~~cultivate current customers in an attempt to lessen the impact of any one customer. While we intend to sell our customer service in an attempt to obtain higher margins than just~~2005, ~~obtaining~~although ~~market~~positively impacting ~~share generally has a negative effect on product margins. • Competitive Environment – Past results and future prospects are significantly affected by~~ the ~~competitive environment in which we operate. We experience intense competition for~~ sales ofand ~~our~~net ~~products~~income ~~in all~~ of ~~our markets. Our competition ranges from small owner-operator distributors to large national retail chains selling to~~ the ~~construction~~Company, ~~industry~~also ~~and~~place ~~large~~strains ~~national~~on ~~companies selling to~~ the Company’s ~~construction and industrial industries~~resources. ~~Typically,~~The ~~the~~most ~~smaller~~significant ~~companies~~items are ~~built around very strong relationships which make it hard to penetrate, while the larger companies have a distinct geographic and price advantage.~~:

~~Other~~· ~~than~~There ~~historical~~is ~~and~~no ~~factual~~reliable ~~statements,~~method ~~the~~to ~~matters~~determine ~~and~~the ~~items~~amount ~~discussed herein are forward-looking statements that involve risks and uncertainties. Actual results~~ of ~~the~~impact ~~Company~~disasters ~~may~~will ~~differ~~have ~~materially from the results discussed herein. Certain, but not all, factors that could contribute to such differences are discussed throughout this report, but are more fully discussed in our report~~ on ~~Form 10-K for~~ the ~~year ended December 31~~Company, ~~2004. We~~nor dois ~~not~~there ~~undertake~~a ~~any~~reliable ~~obligation~~method to ~~publicly~~determine ~~update~~how ~~forward-looking~~long ~~statements to reflect events or circumstances after~~ the ~~date~~impact onmay ~~which the statement is made or to reflect the occurrence of unanticipated events, except as required by law or regulation~~last.

·	The sharp rise in non-recurring revenues from these events can cause significant balances owed to the Company by a few customers. Balancing this concentration risk with sales is a difficult process that involves significant judgment.

·	Certain products can be in short supply because the Company’s vendors are unable to ramp up production to meet the demand in the required time frame.

·	Potential shortages in product result in advanced purchases and maintenance of higher levels of safety stock. If there is little or no damage caused by a catastrophic event or if advance purchasing is too aggressive in estimating needs, the Company could be left with excess inventory.

·	Significant increases in revenues in a short period of time utilize the cash resources available to the Company as the inventory is purchased and paid for generally between 10 - 40 days, while the average collection period is generally more than 60 days.

·	There is significant time involved in planning and responding to these events by employees that would normally be spent on other areas of the business.

Other than historical and factual statements, the matters and items discussed herein are forward-looking statements that involve risks and uncertainties. Actual results of the Company may differ materially from the results discussed herein. Certain, but not all, factors that could contribute to such differences are discussed throughout this report. We do not undertake any obligation to publicly update forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law or regulation.

Overview of First Quarter 2007 Results

·	Net sales increased 4% when compared to 2006.

·	Gross profit increased 12% when compared to 2006.

·	S,G&A costs increased 7% when compared to 2006.

·	Net income of $359,000 increased $139,000 when compared to 2006.

This discussion and analysis of our results of operations and financial condition is intended to provide investors with an understanding of the Company’s recent performance, its financial condition and its prospects. We will discuss and provide our analysis of the following:

·	Results of Operations and Related Information

·	Liquidity and Capital Resources

·	New Accounting Standards

·	Business Outlook

·	Information Concerning Forward-Looking Statements

Results of Operations and Related Information

First ~~Second~~ Quarter ~~2005~~2007 Compared With ~~2004~~2006

Net Sales

Consolidated net sales increased 294% to $1617,~~028~~258,000 from ~~2004~~2006. The Abatix operating segment net sales to external customers increased 271% to $1516,~~105~~215,000, while the IESI operating segment net sales to external customers increased 5970% to $~~923~~1,042,000.

•· The increase in sales to external customers at the Abatix operating segment resulted from: • increased sales to the ~~environmental market primarily as a result of weather related events in California, • increased sales to the~~ industrial ~~manufacturing~~ and construction markets~~, as spending has increased due to the current growth in the U~~.~~S. economy. • The increase in sales at the IESI operating segment resulted from market penetration by a few key customers.~~

11· The increase in sales to external customers at the IESI operating segment resulted from customer purchases in the first quarter of 2007 in anticipation of delays resulting from the Chinese New Year holiday.

Gross Profit

Consolidated gross profit of $45,~~389~~173,000 increased 3112% from ~~2004~~2006. Expressed as a percentage of sales, gross profit was 30.0% and 27.9% in ~~both~~2007 ~~2005~~ and ~~2004~~2006, respectively. ~~The~~ The increase in gross profit dollars is primarily a result of:

•· ~~higher~~Change ~~sales~~in ~~volume~~product tomix ~~the restoration, industrial and construction markets~~ at the Abatix segment, ~~and • higher sales volume at the IESI segment.~~

~~Selling,~~· ~~General~~Higher sales volume in the industrial and ~~Administrative~~construction ~~(“S~~markets at the Abatix segment,~~G&A”)~~ ~~Expenses~~and

~~S,G&A~~· ~~expenses~~Higher ofsales ~~$3,740,000~~volume ~~increased~~within 3%the ~~from~~IESI ~~2004~~segment. ~~The significant changes are:~~

• higher labor costs as a result of higher selling volume, • higher freight expenses as a result of higher selling volume and higher fuel costs, and • higher bad debt expense as a result of the increased write-offs, • partially offset by lower legal expenses.

Expressed as a percentage of sales, S,G&A expenses were 23% and 29% for 2005 and 2004, respectively, as the general and administrative costs did not increase at the same rate as the growth in revenues.

Additional Statement of Operations Commentary

•	Operating profit of 4.1% of sales for 2005 improved from an operating loss of (2.2%) of sales in 2004. The Abatix segment operating profit of 2.8% of sales for 2005 improved from an operating loss of (3.2%) of sales in 2004. The IESI segment operating profit of 23.8% of sales in 2005 improved from 17.2% in 2004.
	•	The improvement at both the Abatix and IESI segments is a result of higher sales volumes without a corresponding increase in general and administrative costs.
•	Interest expense of $75,000 increased approximately $22,000 from 2004 primarily due to higher interest rates, partially offset by lower average line of credit balances.
•	Our effective tax rate was 39% in 2005 and 2004.
•	Net earnings of $350,000 or $.20 per share increased approximately $553,000 from net losses of ($203,000) or ($.12) per share in 2004. The increase in net earnings is primarily due to the higher operating profit.

First Six Months 2005 Compared With 2004

Net Sales

Consolidated net sales increased 26% to $30,754,000 from 2004. The Abatix operating segment net sales increased 24% to $28,841,000, while the IESI operating segment net sales increased 62% to $1,913,000.

• The increase in sales at the Abatix operating segment resulted from: • increased sales to the environmental market primarily as a result of weather related events in California, • increased sales to the industrial manufacturing and construction markets, as spending has increased due to the current growth in the U.S. economy. • The increase in sales at the IESI operating segment resulted from market penetration by a few key customers.

Gross Profit

Consolidated gross profit of $8,531,000 increased 30% from 2004. Expressed as a percentage of sales, gross profit was 28% and 27% in 2005 and 2004, respectively. The increase in gross profit dollars is a result of:

• higher sales volume to the restoration, industrial and construction markets at the Abatix segment, and • higher sales volume at the IESI segment. • The increase in the gross profit rate is primarily a result of better purchasing decisions.

S,G&A Expenses

S,G&A expenses of $74,~~492~~452,000 increased 87% from ~~2004~~2006. Expressed as a percentage of sales, S,G&A expenses were 25.8% and 25.0% for 2007 and 2006, respectively. The significant changes are:

•· ~~higher~~Higher ~~labor~~salaries ~~costs as a result of higher selling volume, • higher freight expenses as a result of higher selling volume~~ and ~~higher~~wage ~~fuel~~ costs, ~~and • higher bad debt expense~~ as a result of ~~the~~normal ~~increased~~annual ~~write-offs,~~increases •in ~~partially~~wages ~~offset~~and byan ~~lower~~increase ~~legal~~in ~~expenses.~~staff,

~~Expressed~~· asHigher ~~a percentage of sales, S,G&A~~ expenses ~~were~~relating ~~24%~~to ~~and~~our ~~28%~~compliance ~~for~~with ~~2005~~SOX ~~and 2004~~404, ~~respectively, as the general and administrative costs did not increase at the same rate as the growth in revenues.~~

·	Higher sales commissions,

·	Higher freight expenses as a result of higher sales volume and higher fuel costs, and

·	Higher depreciation expense resulting primarily from improved materials handling equipment in our Houston and Dallas facilities since April 1, 2006 and the costs in our Jacksonville facility, partially offset by

·	Lower bad debt expense as the receivable quality and collection risk has improved, and

·	Lower office rent primarily due to the closure of the temporary facility in Louisiana in August 2006.

Additional Statement of Operations Commentary

•	Operating profit of 3.4% of sales for 2005 improved from an operating loss of (1.5%) of sales in 2004. The Abatix segment operating profit of 1.8% of sales for 2005 improved from an operating loss of (2.5%) of sales in 2004. The IESI segment operating profit of 25.7% of sales in 2005 improved from 15.4% in 2004.
	•	The improvement at both the Abatix and IESI segments is a result of higher sales volumes without a corresponding increase in general and administrative costs.

·	Operating profit of 4.2% of sales for 2007 increased from 2.9% of sales for 2006. The Abatix segment operating profit of 3.3% of sales for 2007 increased from 1.9% for 2006. The IESI segment operating profit of 13.9% of sales for 2007 decreased from operating profit of 21.1% for 2006.

13o The increase at the Abatix segment is a result of higher gross profit, partially offset by higher S,G&A expenses.

•o Interest expense of $137,000 increased approximately $38,000 from 2004 primarily due to higher interest rates, partially offset by lower line of credit balances. • Our effective tax rate was 39% in 2005, which compared with 32% in 2004. The ~~effective~~decline ~~rate~~at ~~in 2004 is lower than normal as~~ the ~~expected~~IESI ~~tax~~segment ~~benefit~~is as a result of ~~the~~higher ~~losses was partially offset by a $20~~S,~~000~~G&A ~~additional tax expense resulting from an adjustment to the 2001 tax year~~Expenses. • Net earnings of $548,000 or $.32 per share increased approximately $871,000 from net losses of ($323,000) or ($.19) per share in 2004. The increase in net earnings is primarily due to the higher operating profit.

·	Interest expense of $100,000 decreased approximately $30,000 from 2006 primarily due to lower average borrowed balance, partially offset by higher interest rates.

·	Our effective tax rate was 42.8% in 2007 and 39.0% in 2006. The effective tax rate is greater than the Federal statutory rate because it includes items that are not deductible for Federal income taxes, as well as state income taxes.

·	Net earnings of $359,000 or $.21 per share in 2007 increased approximately $139,000 from net earnings of $220,000 or $.13 per share in 2006 as a result of higher gross profit, partially offset by higher S,G&A expenses.

Liquidity and Capital Resources

Cash provided ~~used~~by in operations during ~~2005~~2007 of $~~220~~976,000 decreased when compared to cash provided ~~used~~by in operations during ~~2004~~2006 of $13,~~342~~721,000. The decrease is primarily related to the collection of receivables in the first quarter of 2006 that related to the hurricanes in late 2005.

•	Gross inventory increased 18% over 2004 year-end. Inventory for the comparable period in 2004 also increased 15% over 2003 year-end. The increase in 2005 is a result of:
	•	an increase in stocking levels ahead of price increases on several products, and
	•	inventory stock up in anticipation of the normally busy summer months, which is also hurricane season.
•	Gross accounts receivable increased 4% since December 2004 as sales in the second quarter of 2005 were 9% higher than the first quarter 2005 and 14% higher than the fourth quarter of 2004.

·	Accounts receivable

~~Cash requirements~~o ~~for~~Gross ~~investing~~accounts ~~activities~~receivable ~~during~~increased ~~2005~~3% ofsince ~~$211,000~~December ~~increased by $70~~31,~~000~~ ~~when~~2006 ~~compared~~as ~~to 2004. These requirements were primarily~~ the ~~purchase~~Company’s ofsales ~~corporate~~increased ~~vehicles~~7% ~~and~~in ~~computer hardware and software. Purchases for~~ the ~~remainder~~first ofquarter ~~2005~~2007 ~~are~~when ~~estimated~~compared to besales ~~approximately~~for ~~$300,000~~the ~~and~~fourth ~~will~~quarter ~~primarily include replacement~~ of ~~vehicles and computers, and potentially some additional productivity software~~2006.

~~The~~o ~~Company~~Approximately ~~has~~26% anof $8the receivables balance is held by ten companies,~~000,000~~ ~~working~~with ~~capital~~the ~~line~~largest company comprising approximately 7% of ~~credit~~the receivables balance. While these companies are long-term customers of Abatix and apayment ~~$500~~in full is expected,~~000~~ ~~capital~~non-payment ~~equipment~~or ~~credit~~delays ~~facility~~in atpayment ~~one~~of ~~financial~~these ~~institution~~balances owed would have a significant negative impact on the cash flows of the Company.

•· ~~Based~~Gross oninventory ~~the~~decreased ~~borrowing~~5% ~~formula~~since ~~calculated~~December ~~as of June 30~~31, ~~2005,~~2006 as the Company ~~had~~continues ~~the capacity~~ to ~~borrow~~work up to ~~the~~improve ~~maximum~~inventory ~~of $8,000,000 on its working capital line~~turns. • As of August 3, 2005, there are advances of $6,030,000 outstanding on the working capital credit facility. • As of August 3, 2005 there are advances of $23,000 outstanding on the capital equipment credit facility. • Both credit facilities are payable on demand and bear a variable rate of interest tied to the prime rate. • The majority of the Company’s credit facilities are at one financial institution and are payable on demand. A risk exists that these credit facilities would be called by the financial institution and the Company would be unable to secure other facilities.

Cash 14 requirements for investing activities during 2007 of $27,000 decreased by $25,000 when compared to 2006. These requirements were primarily the:

normal upgrades of computer hardware and software and

some leasehold improvements for the Jacksonville Location.

Purchases for the remainder of 2007 are estimated to be approximately $335,000 and are expected to include:

the replacement of delivery and corporate vehicles,

the continued normal upgrade of computer hardware and software, and

certain leasehold improvements for the San Francisco and Los Angeles facilities.

The Company has a $12,000,000 working capital line of credit with its financial institution and a $500,000 capital equipment credit facility.

·	Based on the borrowing formula calculated as of March 31, 2007, the Company had the capacity to borrow up to a maximum of $10,111,000 on its working capital line.

·	As of May 9, 2007, there are advances of $4,149,000 outstanding on the working capital credit facility.

·	As of May 9, 2007, there are advances of $281,000 outstanding on the capital equipment credit facility.

·	Both credit facilities expire in October 2008 and bear a variable rate of interest tied to the prime rate. Although, the Company, at its option, can convert the working capital facility to a Libor rate loan.

·	The equipment facility is payable on demand.

·	The majority of the Company’s credit facilities are at one financial institution. There is risk associated with having the majority of the Company’s relationship with one financial institution.

Contractual Obligations

The following table presents the Company’s total contractual obligations as of ~~June 30~~March 31, ~~2005~~2007 for which future cash flows are fixed or determinable (in thousands).

	2005		2006		2007		2008		2009		2010		Total
	Payments due by period
Contractual obligations:
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases	$	543	$	532	$	348	$	132	$	118	$	69	$	1,742
Working Capital Line of Credit	$	4,430	$	4,430	$	-	$	-	$	-
Working capital line of credit		5,869		—		—		—		—		—		5,869
Long-Term Debt Obligations		321		128		193		-		-
Equipment notes		26		37		20		8		5		1		97
Capital Lease Obligations		-		-		-		-		-
Employment contracts		292		584		—		—		—		—		876
Operating Lease Obligations		7,263		764		2,131		1,745		2,623
Open purchase orders		1,597		—		—		—		—		—		1,597
Inventory Purchase Obligations		2,279		2,279		-		-		-
Other obligations		22		28		7		7		4		—		68
Other Purchase Obligations		424		217		202		5		-
Total contractual obligations	$	8,349	$	1,181	$	375	$	147	$	127	$	70	$	10,249
Employment Contracts		1,076		461		615		-		-
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet Under GAAP		-		-		-		-		-
Total	$	15,793	$	8,279	$	3,141	$	1,750	$	2,623

Commentary:

•· ~~The~~Even ~~amounts~~though ~~for 2005 represent~~ the ~~approximate contractual obligations for the remainder of 2005. • The~~ Company’s working capital line of credit agreement ~~includes~~has a ~~feature~~maturity ~~that~~date ~~allows~~of ~~the~~October ~~bank~~2008, tothere ~~call~~is ~~the~~no ~~debt;~~defined ~~therefore~~payment schedule. Therefore, ~~the~~this ~~debt~~line of credit is classified as a current liability on the Consolidated Balance Sheets ~~and included above~~. ~~This line of credit contains no defined payment schedule.~~ In addition, the ~~Company~~above ~~uses~~amount ~~letters~~does ofnot ~~credit~~include toa ~~periodically~~contractual ~~facilitate~~obligation ~~the~~related ~~purchase~~to ofthe ~~goods~~interest ~~from~~since ~~outside~~ the ~~United~~interest ~~States.~~rate Asis ofvariable ~~June~~and ~~30, 2005,~~ the ~~Company~~working ~~had~~capital ~~one~~line ~~outstanding letter~~ of credit ~~for~~balance ~~approximately $19~~fluctuates,~~000,~~ ~~which~~therefore ismaking ~~included in~~ the ~~above~~interest ~~table.~~component •not ~~The~~fixed ~~Company’s~~and ~~equipment notes are comprised of term notes of 36 to 60 months in length~~determinable. ~~While~~If ~~these~~the ~~term~~March ~~notes are listed above in accordance with their scheduled payments~~31, ~~certain~~2007 ofbalance ~~these~~were ~~term~~outstanding ~~notes~~for ~~have~~an aentire ~~call feature~~year, ~~and are therefore classified as current liabilities on~~ the ~~Consolidated~~interest ~~Balance~~payable ~~Sheets.~~would •be ~~The~~approximately ~~employment agreements with the Chief Executive~~$343,000 ~~Operating~~at ~~and Financial Officers expire on December 31, 2006. • The open purchase orders represent amounts~~ the Company’s ~~anticipates~~current ~~will~~interest ~~become payable within the next year for saleable product~~rate.

1514

The Company’s long-term debt obligations are comprised of equipment notes with terms of 24 to 60 months in length. Certain of these term notes also have a call feature, and are therefore classified as current liabilities on the Consolidated Balance Sheets. The other term notes with no call feature are properly classified between the current liabilities and non-current liabilities sections on the Consolidated Balance Sheets.

The inventory purchase obligations represent purchase order amounts the Company anticipates will become payable within the next year for saleable product.

The other purchase obligations include amounts due on contracts for telecommunication and credit services.

The employment agreements with the executive officers expire on December 31, 2008.

New Accounting Standards

In February ~~June 2005~~2006, the ~~Financial Accounting Standards Board (“~~FASB”) issued Statement of Financial Accounting Standards (“Statement”) ~~154~~No. 155, “Accounting ~~Changes~~for ~~and~~Certain ~~Error~~Hybrid ~~Corrections~~Financial Instruments.” This aStatement, ~~replacement~~which ~~for~~amends ~~Accounting~~Statement ~~Principles Board (“APB”) Opinion~~ No. 20133 and ~~FASB Statement 3~~No. ~~Statement~~ ~~154~~140, ~~applies~~(1) topermits ~~all~~fair value ~~voluntary~~remeasurement ~~changes~~for inany ~~accounting~~hybrid ~~principle~~financial ~~and~~instrument ~~changes~~that ~~the~~contains ~~requirement~~an embedded ~~for~~derivative ~~accounting~~that ~~for~~otherwise ~~and~~would ~~reporting~~require ofbifurcation, a(2) ~~change~~clarifies which ininterest-only ~~accounting~~strips ~~principle. It~~and ~~also~~principal-only ~~applies~~strips toare ~~changes~~not ~~required~~subject byto ~~an accounting pronouncement in~~ the requirements ~~unusual~~of ~~instance~~Statement ~~that~~No. ~~the~~133, ~~pronouncement~~(3) ~~does~~establishes ~~not~~a ~~include~~requirement ~~specific~~to ~~transition~~evaluate interests ~~provisions. When~~in asecuritized ~~pronouncement~~financial ~~includes~~assets ~~specific~~to ~~transition~~identify ~~provisions,~~interests ~~those~~that ~~provisions~~are freestanding ~~should~~derivatives beor ~~followed. APB~~that ~~Opinion~~are ~~No.~~hybrid 20financial ~~required~~instruments that ~~most~~contain an ~~voluntary~~embedded ~~changes~~derivative inrequiring ~~accounting~~bifurcation, ~~principle~~(4) beclarifies ~~recognized~~that byconcentrations of ~~including~~credit risk in ~~net~~the ~~income~~form of ~~the~~subordination ~~period~~are ofnot ~~the~~embedded ~~change~~derivatives, ~~the~~and (5) ~~cumulative~~amends ~~effect~~Statement ofNo. ~~changing~~140 to eliminate the ~~new~~prohibition ~~accounting principle. Statement~~on ~~154~~a ~~establishes~~qualifying special-purpose ~~that~~entity ~~unless~~from ~~impracticable,~~holding ~~retrospective~~a ~~application~~derivative isfinancial ~~the~~instrument ~~required~~that pertains ~~method~~to ~~for reporting~~ a ~~change~~beneficial ininterest ~~accounting~~other ~~principle~~than inanother ~~the~~derivative ~~absence~~financial instrument. ofThis ~~explicit~~Statement ~~transition~~is ~~requirements~~effective ~~specific~~for toall ~~the~~financial ~~newly~~instruments ~~adopted~~acquired or ~~accounting~~issued ~~principle. While~~after the ~~correction~~beginning of anthe ~~error~~entity’s isfirst ~~not~~fiscal anyear ~~accounting~~that ~~change~~begins after September 15, 2006. Statement ~~154~~No. ~~requires~~155 ~~the~~was ~~restatement~~adopted ofon ~~previously~~January ~~issued~~1, ~~financial statements~~2007. ~~The~~ There ~~Company~~was ~~does~~no ~~not~~material ~~expect~~impact resulting from the adoption of Statement ~~154~~No. ~~to have a material impact~~ 155 on the ~~its~~Company’s financial statements.

In ~~June 2005~~ March 2006, the ~~Emerging~~FASB ~~Issues~~issued ~~Task~~Statement ~~Force~~No. (156, “~~EITF”)~~Accounting ~~reached~~for aServicing ~~tentative~~of ~~conclusion~~Financial Assets on- ~~Issue~~an Amendment of FASB Statement No. ~~04-13~~140.” This Statement, ~~“Accounting~~which ~~for~~amends Statement ~~Purchases~~No. ~~and~~140: ~~Sales~~(1) ofRequires ~~Inventory~~an ~~With~~entity ~~the~~to ~~Same~~recognize ~~Counterparty.” The~~a ~~first~~servicing ~~issue~~asset ~~surrounds~~or servicing ~~the~~liability ~~recognition~~each oftime it undertakes an obligation to service a ~~nonmonetary~~financial asset ~~transaction~~by atentering ~~fair~~into ~~value~~a ~~rather~~servicing ~~than~~contract atin ~~recorded~~certain ~~amounts. The~~situations; ~~second~~(2) ~~issue~~Requires all ~~surrounds~~separately ~~the~~recognized ~~classification~~servicing ofassets ~~two~~and orservicing ~~more~~liabilities ~~nonmonetary~~to ~~transactions~~be initially ~~being~~measured ~~viewed~~at asfair avalue; ~~single~~(3) ~~nonmonetary~~Permits ~~transaction. With~~an ~~respect~~entity to choose either the amortization ~~first~~method ~~issue,~~or the ~~Company~~fair ~~does,~~value onmeasurement ~~occasion,~~method ~~purchase~~for each class of separately recognized servicing assets and ~~sell~~servicing ~~finished~~liabilities; ~~goods~~(4) ~~inventory~~At toits initial ~~other~~adoption, ~~companies~~permits ~~within~~a ~~the~~one-time ~~same~~reclassification ~~line~~of available-for-sale securities under Statement 115 under certain conditions; and (5) Requires separate presentation of ~~business. These~~servicing ~~transactions~~assets ~~have~~and ~~been~~servicing ~~recognized~~liabilities subsequently measured at ~~the~~fair ~~recorded~~value ~~amount~~ in ~~accordance~~the ~~with~~balance ~~the~~sheet ~~EITF~~and ~~tentative~~additional ~~conclusion. With~~disclosures ~~respect~~for all separately torecognized ~~the~~servicing ~~second~~assets ~~issue,~~and ~~the~~servicing ~~EITF~~liabilities. ~~created~~This aStatement is ~~list~~effective as of ~~indicators~~the ~~that~~beginning ~~would~~of ~~trigger~~the ~~two~~first orfiscal ~~more~~year ~~nonmonetary~~that ~~transaction~~begins beafter September ~~accounted~~15, ~~for~~2006. asStatement aNo. ~~single~~156 ~~transaction. Based~~was adopted on ~~the~~January ~~criteria established~~1, ~~the~~2007. There ~~Company~~ was no ~~does~~material ~~not~~impact ~~expect~~resulting ~~any~~from ~~impact~~the toadoption ~~its~~of ~~financial~~Statement ~~statements~~No. ~~from~~156 on the Company’s ~~EITF~~financial ~~conclusion~~statements.

In June 2005, the EITF reached a final conclusion on Issue No. 05-06, “Determining the Amortization Period for Leasehold Improvements.” The EITF concluded that leasehold improvements placed in service significantly after and not contemplated at, or near, the beginning of the lease term, should be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonable assured at the date the leasehold improvements are purchased. This consensus applies only to purchase of significant leasehold improvements as a result of a single capital investing decision. The Company does not expect any impact to its financial statements from the EITF conclusion.15

In ~~June 2005~~ July 2006, the ~~Financial~~FASB ~~Accounting Standards Board~~ issued anFIN ~~Exposure~~48, ~~Draft~~“Accounting ~~containing~~for aUncertainties ~~joint~~in ~~proposal~~Income ~~with~~Tax.” ~~the~~The purpose ~~International~~of ~~Accounting~~FIN ~~Standards~~48 ~~Board~~is to ~~improve~~clarify and ~~align~~set ~~the~~forth ~~accounting~~consistent rules for ~~business~~accounting for ~~combinations~~uncertain tax positions in accordance with Statement No. ~~The~~ ~~proposed~~109, ~~standard~~“Accounting for ~~would~~Income ~~replace~~Taxes.” FIN 48 defines the ~~existing~~threshold ~~requirements~~for ofrecognizing ~~Statement~~the benefits of tax-return ~~Financial~~positions ~~Accounting~~in ~~Standards~~the (financial statements as “~~Statement~~more-likely-than-not”) ~~141,~~to ~~Business~~be sustained ~~Combinations~~by the taxing authority and applies to all tax positions. The cumulative ~~Company~~effect ~~has~~of ~~yet~~applying the provisions of this interpretation is required to ~~determine~~be reported separately as an adjustment to the ~~impact~~opening balance of retained earnings in the ~~Exposure~~year ~~Draft~~of adoption. Additionally, ifFIN ~~adopted~~48 inrequires ~~its~~other ~~current~~annual disclosures. ~~state~~FIN 48 is effective as of the beginning of the first fiscal year beginning after December 15, ~~would~~2006 with earlier application permitted if no interim financial statements have been issued. FIN 48 was adopted on ~~its~~January 1, 2007. There was no material impact resulting from the adoption of FIN 48 on the Company’s financial statements. See note 1 to the Consolidated Financial Statements for a discussion of the accounting policy for interest and penalties.

In September ~~June 2005~~2006, the FASB issued anStatement ~~Exposure~~No. ~~Draft~~157, ~~containing~~“Fair aValue ~~joint~~Measurement.” Statement ~~proposal~~No. 157 ~~with~~will ~~the~~change ~~International~~current ~~Accounting~~practice ~~Standards~~by ~~Board~~defining ~~that~~fair ~~proposes~~value ~~noncontrolling~~as the ~~interests~~price that would be ~~classified~~received asto ~~equity~~sell ~~within~~an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date. Statement No. 157 will require the ~~consolidated~~market-based ~~financial~~measurement, ~~statements~~not ~~and~~an entity-specific measurement, based on the ~~acquisitions~~assumptions ofmarket ~~noncontrolling~~participants ~~interests~~would make bein ~~accounted~~pricing ~~for~~the asasset ~~equity~~or ~~transactions~~liability. The ~~Company~~effective ~~has~~date ~~yet~~of toStatement No. 157 ~~determine~~is ~~the~~for ~~impact~~fiscal ofyears ~~the~~beginning ~~Exposure~~after ~~Draft~~November 15, if2007 ~~adopted~~and ininterim periods ~~its~~within ~~current~~those ~~state,~~fiscal ~~would~~years. The Company does not expect the adoption of Statement No. 157 to have a material impact on its financial statements.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” Statement No. 158 amends Statements 87, 88, 106 and 132(R). Statement No. 158 would require employers to recognize the funded status of a benefit plan in its statement of financial position and recognize the gains or losses and prior service costs as a component of other comprehensive income. Employers must also measure defined benefit plan assets and obligations as of the date of the fiscal year financial statements and to disclose in the notes to the financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arises from gains, losses or prior costs of service as well as transition of asset or obligation. The effective date of Statement No. 158 is for fiscal years ending after December 15, 2006 for the funded status of a benefit plan and the disclosure requirements and fiscal years ending after December 15, 2008 for the measurement of plan assets benefit obligations. Statement No. 158 was adopted was adopted by the Company with no material impact resulting on the Company’s financial statements.

In September 2006, The FASB posted FSP No. AUG-AIR-1, “Accounting for Planned Major Maintenance Activities.” This FSP addresses the accounting for planned major maintenance activities and amends certain provisions in APB Opinion No. 28, “Interim Financial Reporting.” This FSP is applicable to all industries and prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The effective date of FSP No. AUG-AIR-1 is for the first fiscal year beginning after December 15, 2006. FSP No. AUG-AIR-1 was adopted on January 1, 2007. There was no material impact resulting from the adoption of FSP No. AUG-AIR-1 on the Company’s financial statements.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” Statement No. 159 gives companies an option to report selected financial assets and liabilities at fair value. Statement No. 159 also established presentation and disclosure requirements. The effective date of Statement No. 159 is for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of Statement No. 159 to have a material impact on its financial statements.

Business Outlook

Our goal for ~~2005~~2007 is to produce revenue growth, exclusive of ~~the~~any non-recurring revenues that inmay ~~Florida in 2004~~occur, as it is vital to our long-term success.

•· We are anticipating the industrial ~~manufacturing~~ and construction markets to remain steady as the general economy and, in particular, the real estate market, have stabilized. ~~However,~~Although ~~recent increases in interest rates could negatively impact~~ the economy. • We anticipate growth in the environmental market, and in particular, the restoration subset of that market. However, year over year growth will be difficult as the third and fourth quarters of 2004 include the positive impact on our business from the 2004 hurricanes in Florida. • The homeland security segment is expected to continue to grow in 2005. The growth in this market to date has been with the public sector and generally is at lower margins than the remainder of the Company’s ~~markets.~~does ~~We are hopeful the private sector will spend more money on homeland security products as the economy remains stable; however, there is~~ not sell much ~~evidence~~ to ~~support~~ the ~~private~~residential ~~sector~~housing ~~will begin to spend on our homeland security products. In response to these issues~~industry, the ~~Company~~recent ~~has~~slowdown ~~lowered~~in ~~its cost structure to support~~ this ~~market.~~industry •could ~~Hiring~~affect ~~of additional sales staff will be critical for long-term growth of~~ the ~~Company.~~commercial •construction ~~Diversification~~industry ofin ~~our customer base, especially at the IESI segment, will also help provide more consistent results~~2007. Although no customer is more than 5% of our revenues, we have several large customers, the loss of which would impact our business. The growth at the IESI segment was primarily generated by two customers. We are focused on helping all of our customers grow, as well as adding to our customer base. • New locations and acquisitions will most likely be critical for the long-term growth of the Company. Although we are not certain if and when we will open new locations, we are currently evaluating certain markets as possibilities. We are not currently evaluating any acquisitions.

~~Overall~~· ~~margins~~We ~~for~~anticipate ~~2005~~growth ~~are~~in ~~anticipated~~the toenvironmental ~~remain~~market, atand ~~their~~in ~~current~~particular, ~~levels~~the restoration subset of that market.

•· WeHiring ~~are~~of ~~utilizing~~additional ~~certain~~sales ~~tools~~staff ~~and~~will ~~reporting from our new computer system in an effort to enhance margins. In addition, these tools and reporting should allow us to identify issues that can~~ be ~~addressed~~critical ~~more~~for ~~quickly,~~long-term ~~thereby~~growth ~~minimizing possible margin erosion. • We continue to evaluate the consolidation~~ of certain vendors to gain access to better pricing. • We are evaluating alternative methods for sourcing products to enhance our purchasing process. • However, further competitive pressures or changes in the ~~customer or product mix could negatively impact any and all efforts by the~~ Company ~~to maintain or improve product margins~~.

Diversification of our customer base, especially at the IESI segment, will also help provide more consistent results. Although no customer is more than 5% of our revenues, we have several large customers, the loss of which would impact our sales and profitability. We are focused on helping all of our customers grow, as well as adding to our customer base.

New locations and acquisitions will most likely be critical for the long-term growth of the Company. Although we are not certain if and when we will open more locations, we are currently evaluating certain markets as possibilities. Although we are approached on a periodic basis, we are not seriously evaluating any acquisitions at this time.

Overall ~~The~~ margins ~~Company~~for ~~will~~2007 ~~need~~are toanticipated ~~further reduce costs~~ to ~~stay~~be ~~competitive~~in ~~and~~the ~~improve~~27 on- ~~its~~28% ~~profitability~~range.

•· We ~~intend~~are toutilizing ~~continue~~certain ~~evaluating~~tools ~~costs, including labor related costs, rent, freight~~ and ~~depreciation~~reporting ~~which~~from ~~make up approximately 75% of~~ our ~~selling,~~computer ~~general~~system ~~and administrative costs, to ensure our cost structure is~~ in ~~line~~an ~~with~~effort ~~our revenue stream and supports our business model. We do anticipate our legal expenses in 2005 will be less than 2004. • The Company recently began its work~~ to ~~comply~~enhance ~~with Section 404 of the Sarbanes-Oxley Act of 2002~~margins. ~~The~~In ~~Company currently estimates that it will incur approximately $500~~addition,~~000~~ inthese ~~costs,~~tools ~~most~~and ofreporting ~~which~~should ~~are~~allow ~~external~~us ~~costs, related~~ to ~~this~~identify ~~work.~~issues ~~These~~that ~~costs~~can ~~will~~ be ~~incurred~~addressed ~~over~~more ~~2005 and 2006. • If the recent growth in revenues continues or the current level of revenues is sustainable~~quickly, ~~our~~thereby ~~selling,~~minimizing ~~general~~possible ~~and~~margin ~~administrative expenses should be in the 25% of sales range for 2005~~erosion. ~~• The Company’s credit facilities are variable rate notes tied to the lending institution’s prime rate. Increases in the prime rate could negatively affect the Company’s earnings.~~

~~Depending~~· onWe ~~many~~continue ~~factors,~~to ~~including~~evaluate the ~~timing~~consolidation of ~~sales,~~certain ~~cash~~vendors ~~flow from operations for the entire year of 2005 is expected~~ to beenhance ~~positive as the Company continues its receivables collection efforts, further improvements are made to inventory and purchasing and there is continued refinement in our cost structure~~value.

•· ~~Unless~~Alternative ~~the~~methods ~~Company employs a more aggressive growth strategy, management believes the Company’s current credit facilities, together with cash provided by operations, will be sufficient~~ for ~~its~~sourcing ~~capital~~products ~~and~~are liquidity requirements for the next twelve months. • The Company’s accounts receivable collection days have leveled off over the past year after increasing because of the sharp decrease in sales to restoration contractors in early 2003. The Company took steps to protect our interests in certain receivables and increased its bad debt expense. The Company believes its allowance for bad debts is sufficient to cover any anticipated losses. • The Company’s inventory turns have improved slightly over the past year after increasing because of the sharp decrease in sales to restoration contractors and the increase in inventory levels to support a customer of IESI. The improvement in sales overall and sales to IESI’s customer have helped the inventory turns. Further work in reducing inventory levels is needed. • A new location would require approximately $100,000 in fixed asset purchases, comprised of computers, office furniture, warehouse racking and potentially a delivery vehicle. In addition, cash will also bebeing ~~required~~evaluated to ~~stock~~enhance ~~this location with product and to finance the customers’ purchases~~value. Cash flow from operations and borrowings on our lines of credit will most likely be used to finance any new location. • Unless the Company’s stock could be used as currency, any acquisitions would most likely require the raising of capital as the borrowing capacity on the lines of credit and the cash flow from operations would most likely not be sufficient to support an acquisition of reasonable size.

~~Information~~· ~~Concerning~~However, ~~Forward-Looking~~further ~~Statements~~competitive pressures or changes in the customer or product mix could negatively impact any and all efforts by the Company to maintain or improve product margins.

The Certain statements contained herein, among other things, are of a forward-looking nature relating to future events or the future business performance of Abatix. Such statements involve a number of risks and uncertainties including, without limitation, the occurrence and timing of weather related events, global, national and local economic and political conditions; changes in laws and regulations relating to the Company’s ~~products~~will ~~and~~need the import of such products; the outcome of litigation; market acceptance of new products, existence or development of competitive products the Company represents as a distributor that outperform current product lines or are priced more competitively; inability to ~~hire and train quality people or retain current employees; changes in interest rates; the financial status of key customers and vendors; efforts to control and/or~~ reduce costs; ~~adverse~~to ~~weather~~stay ~~conditions;~~competitive ~~significant changes in oil prices; or the Company’s success in the process of management’s assessment~~ and ~~auditor~~improve ~~attestation of internal controls, as required by the Sarbanes-Oxley Act of 2002~~its profitability. We do not undertake any obligation to publicly update forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law or regulation.

·	We intend to continue evaluating costs, including labor related costs, rent and freight which make up approximately 75% of our S,G&A costs, to ensure our cost structure is in line with our revenue stream and supports our business model.

·	The Company experienced two facility moves in 2006, including the Dallas location, which includes the Dallas distribution facility, IESI and the corporate office. Facility moves are expensive and disruptive. There are no planned moves in 2007.

·	The revenues related to our Jacksonville facility are not expected to be sufficient to cover the operating costs in the first twelve to eighteen months of operations.

In 2005, the Company began its work to comply with SOX 404. The Company currently estimates that it will incur in excess of $800,000 in costs, most of which are external costs, related to this work. These costs do not include internal personnel costs because they are difficult to determine. After our initial compliance, some of this personnel time will revert to operating and growing the business, although personnel will continue to work on the annual compliance requirements.

·	Unless revenues improve significantly and are sustainable, S,G&A expenses are estimated to be in the 24 - 25% range for 2007.

·	The Company’s credit facilities are variable rate notes tied to the lending institution’s prime or Libor rates. Increases in these rates have already and could continue to negatively affect the Company’s earnings.

Depending on many factors, 2007 cash flow from operations for the entire year is expected to be positive primarily due to earnings, non-cash charges and inventory reduction.

·	Unless the Company employs a more aggressive growth strategy, management believes the Company’s current credit facilities, together with cash provided by operations, will be sufficient for its capital and liquidity requirements for the next twelve months.

·	The Company does not expect a significant change in its accounts receivable collection days and also believes its allowance for bad debts is sufficient to cover any anticipated losses.

·	The Company’s inventory turns have decreased over the past twelve months. The Company is continuing to work on reducing inventory levels; however, the Company believes its allowance for inventory obsolescence is sufficient to cover any valuation issues.

A new location could require approximately $100,000 in fixed asset purchases, comprised of computers, office furniture, warehouse racking and potentially a delivery vehicle. Cash would be required to stock a location with product and to finance the customers’ purchases. Cash flow from operations and borrowings on our lines of credit would most likely be used to finance any new location.

·	Unless the Company’s stock could be used as currency, any acquisitions would most likely require the raising of capital as the borrowing capacity on the lines of credit and the cash flow from operations would most likely not be sufficient to support an acquisition of reasonable size.

·	The Company currently estimates that it will incur in excess of $450,000 in additional costs in 2007 related to the initial compliance with SOX 404. These costs are expensed as incurred.

Information Concerning Forward-Looking Statements

Certain statements contained herein, among other things, are of a forward-looking nature relating to future events or the future business performance of Abatix. Such statements involve a number of risks and uncertainties including, without limitation, the occurrence, timing and property devastation from disasters or lack thereof; global, national and local economic and political conditions; changes in laws and regulations relating to the Company’s products; the ability to import or source products; market acceptance of new products; existence or development of competitive products that outperform current product lines or are priced more competitively; inability to hire and train quality people or retain current employees; changes in interest rates; the financial status of and relationships with key customers and vendors, including non-trade vendors; efforts to control and/or reduce costs; fluctuations in oil prices; or the Company’s success in the process of management’s assessment and auditor attestation of internal controls, as required by the SOX 404. We do not undertake any obligation to publicly update forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law or regulation.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes from the information previously reported under Item 7A of the Company’'s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2004~~2006.

Item 4. Controls and Procedures.

Within the 90-day period prior to the date of this report, the Company evaluated, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer conclude that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act filings.

There have been no significant changes in the Company’s internal controls over financial reporting or in other factors, which could significantly affect internal controls over financial reporting subsequent to the date the Company carried out its evaluation.

The Company is currently undergoing a comprehensive effort to ensure compliance with the new regulations under Section 404 of the Sarbanes-Oxley Act that take effect for the Company’s fiscal year ending December 31, 2006. This effort includes internal control documentation and review under the direction of senior management. In the course of its ongoing evaluation, management has identified certain areas requiring improvement, which the Company is addressing. Management routinely reviews potential internal control issues with the Company’s Audit Committee.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Item ~~All~~ 4. ofControls ~~the lawsuits were transferred to one Federal District Court in the Northern District of Texas, Dallas Division (“Federal Court”)~~ and ~~have been consolidated into a single case under Cause No~~Procedures. ~~3-04CV-872-D; Family Medicine Specialists, et al v. Abatix, et al. (“Class Action”).~~

Evaluation ~~On May 27, 2004, the officers and directors~~ of ~~Abatix~~Disclosure ~~Corp.~~Controls ~~were named as defendants in a lawsuit filed in the District Court of Dallas County, Texas, 162nd Judicial District (“State District Court,”~~ and when combined with the Federal Court as “Courts”) styled Daniel M. Johnson Plaintiff v. Terry Shaver; Frank Cinatl IV; Gary L Cox; Donald N. Black; Eric A. Young; and A. David Cook; Defendants v. Abatix Corp. Nominal Defendant (Cause No. 2004-04-4841) (“Derivative Suit”), although Plaintiff has dismissed A. David Cook from this case. This suit is a stockholder derivative action that alleges that all of the defendants breached certain fiduciary duties and abused their control of Abatix. Further, the plaintiff seeks contribution and indemnification. In addition, this petition alleges that Donald Black, an outside board of director of Abatix, breached his fiduciary duties by selling securities based on allegedly material, non-public information and by allegedly misappropriation of information.Procedures

As On of March ~~May 6~~31, ~~2005~~2007, the Company ~~executed~~evaluated, aunder ~~Stipulation~~the supervision and ~~Agreement~~with ~~of Settlement to settle~~ the participation ~~Class~~of ~~Action (“Class Stipulation”) now pending in~~ the ~~Federal~~Company's ~~Court. On May 9~~management, ~~2005,~~including the Company's ~~executed~~Chief Executive aOfficer ~~Stipulation of Compromise~~ and ~~Settlement~~Chief toFinancial ~~settle the Derivative Suit (“Derivative Stipulation~~Officer,” ~~and~~of ~~with~~ the ~~Class~~effectiveness ~~Stipulation,~~of ~~“Stipulations”) now pending in~~ the design ~~State District Court. While the Company was prepared to vigorously defend itself~~ and ~~the~~operation ~~officers~~of ~~and directors against~~ the ~~allegations, the~~ Company's ~~agreed~~disclosure tocontrols ~~settle the Class Action for $900,000 in cash~~ and ~~will~~procedures pursuant ~~adhere~~ to ~~certain~~Rule ~~corporate~~13a-15 ~~governance provisions to settle the Derivative Suit, so that management~~ and ~~its~~15d-15 ~~employees~~of ~~can concentrate their full attention on growing~~ the ~~business~~Securities byExchange ~~eliminating~~Act ~~the distraction~~ of ~~further~~1934 ~~protracted~~(the "Exchange ~~litigation~~Act"). In ~~addition,~~Based ~~the~~upon ~~Company~~that ~~agreed~~evaluation, to the ~~Stipulations~~Chief inExecutive ~~order~~Officer ~~to eliminate the litigation risk~~ and ~~expense. The~~ Chief ~~settlement~~Financial ~~funds~~Officer ~~are~~conclude ~~expected~~that ~~to be covered by~~ the Company’'s ~~insurance~~disclosure ~~policy. Accordingly,~~controls ~~there~~and procedures ~~are~~were noeffective ~~expected~~in ~~charges~~timely ~~against~~alerting ~~the~~them ~~Company’s earnings related~~ to ~~this~~material ~~matter. These proposed settlements expressly provide that the~~ Company ~~and~~ (including its ~~officers~~consolidated orsubsidiary) ~~directors~~events doand ~~not~~information ~~admit~~required orto ~~concede~~be ~~any~~included in the ~~violation~~Company's ofExchange ~~law~~Act ~~or wrongdoing of any kind~~filings.

OnInternal Control ~~May~~over ~~16,~~Financial 2005, the State District Court signed the Order Regarding Proposed Derivative Action Settlement, Settlement Hearing and Notice Thereof which allows the notification of the proposed settlement to the stockholders of record as of May 9, 2005. In addition, August 11, 2005 was established as the date for, among other things, determining whether the proposed settlement is fair, reasonable and in the best interest of the nominal defendant, the Company, and its stockholders and whether it should be approved by the State District Court.Reporting

The On Company ~~May~~is ~~17,~~currently ~~2005,~~undergoing ~~the~~a ~~Federal~~comprehensive ~~Court~~effort ~~signed~~to ensure compliance with the ~~Preliminary~~regulations ~~Order~~under ~~for~~SOX ~~Notice~~404 ~~and~~that ~~Hearing~~take ineffect ~~Connection~~for ~~with~~the ~~Settlement~~Company’s ~~Proceedings~~fiscal ~~which~~year ending ~~allows~~December ~~the~~31, ~~notification~~2007. ofThis ~~the~~effort ~~proposed~~includes ~~settlement~~internal tocontrol documentation and design evaluation under the ~~class~~direction of senior management. In ~~addition,~~the ~~August~~course of its 11ongoing evaluation, ~~2005~~management ~~was~~has ~~established~~identified ascertain ~~the~~areas ~~date for~~requiring improvement, ~~among~~which ~~other~~the ~~things,~~Company ~~determining~~is ~~whether~~addressing. ~~the~~Management ~~proposed~~routinely ~~settlement~~reviews potential isinternal ~~fair,~~control ~~reasonable~~issues ~~and~~with ~~adequate~~the Company’s Audit Committee.

Changes in Internal Control

There have been no changes in the Company's internal controls over financial reporting or in other factors that occurred in the first quarter 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

The It design isof ~~the~~any ~~understanding~~system of ~~the~~controls ~~Company~~is ~~that~~based ~~the~~in ~~counsel~~part ~~for~~upon certain assumptions about the ~~plaintiffs~~likelihood inof ~~both~~future ~~the~~events, ~~Class Action~~ and ~~the~~there ~~Derivative~~can ~~Suit~~be ~~have~~no ~~complied~~assurance ~~with~~that ~~the~~any ~~applicable~~design will ~~procedures~~succeed toin ~~notify~~achieving ~~the~~its ~~appropriate~~stated ~~parties. It~~goals isunder ~~also~~all ~~the~~potential ~~Company’s~~future conditions. ~~understanding~~Over ~~that~~time, ~~one~~controls ~~class~~may ~~member~~become ~~has~~inadequate ~~opted~~because ~~out~~ of ~~the~~changes ~~proposed settlement~~ in conditions ~~the Class Action and that no members of the Class Action~~ or ~~the~~deterioration ~~Derivative~~in ~~Suit have objected to~~ the ~~proposed~~degree ~~settlement. The~~of ~~proposed~~compliance ~~settlement~~with ~~remains~~policies ~~subject to final approval by the Courts~~and procedures. ~~Members~~Because of the ~~class~~inherent ~~are~~limitations ~~defined~~in asa ~~purchasers~~cost-effective ofcontrol system, ~~Abatix~~misstatements ~~common~~due ~~stock~~to ~~from~~error ~~5:05~~or ~~p.m.~~fraud ~~Eastern~~may ~~Standard~~occur ~~Time on April 14, 2004 through~~ and ~~including~~not ~~April 30, 2004~~be detected.

PART ~~Other~~ II ~~than~~- ~~the~~OTHER applicable policy deductible and the fees and expenses incurred prior to provision of notice to the insurance carrier, the insurance company has paid for the defense costs related to the Class Action and Derivative Suit. At this time, it is not possible to predict whether the Company will have any additional liability or to estimate additional costs that may be incurred with such actions that may not be covered by any applicable insurance policy.INFORMATION

Item 1. Legal Proceedings. None

Item 1A. Risk Factors. There has been no material change from the risk factors previous disclosed in the Company’s Form 10-K for the year ended December 31, 2006.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None

Item 3. Defaults upon Senior Securities. None

Item 4. Submission of Matters to a Vote of Security Holders. None

At the Annual Stockholders’ Meeting on May 26, 2005, the stockholders elected Terry W. Shaver, Gary L. Cox, Donald N. Black, Eric A. Young and A. David Cook as the Board of Directors for the Company until the next Annual Stockholders’ Meeting in 2006. A total of 1,675,604 votes were for the election Terry W. Shaver, A. David Cook and Eric A. Young as directors with 2,300 shares against their election and no shares withheld. A total of 1,676,704 votes were for the election Gary L. Cox and Donald N. Black as directors with 1,200 shares against their election and no shares withheld. In addition, the stockholders also ratified the appointment of KPMG LLP to serve as independent auditors of the Company for the year ending December 31, 2005. A total of 1,676,704 votes were for the ratification of the appointment of the auditors with 1,200 shares against and no shares withheld.

Item 5. Other Information. None

Item 6. Exhibits.

(a) Exhibits – (31)(a) – Certification of Chief Executive Officer * (31)(b) – Certification of Chief Financial Officer * (32)(a) – Certification of Chief Executive Officer * (32)(b) – Certification of Chief Financial Officer * * Only included with the Company’s electronic filing with the SEC.

(31.1)	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), filed herewith.*

(31.2)	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed herewith.*

(32.1)	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.*

(32.2)	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.*

* - Only included with the Company’s electronic filing with the Securities and Exchange Commission.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ABATIX CORP.
	ABATIX CORP. (Registrant)
	(Registrant)
Date: May 11, 2007	By:	/s/ Frank J. Cinatl, IV
Date: August 3, 2005	By:	/s/ FRANK J. CINATL, IV
		Frank J. Cinatl, IV Vice President and Chief Financial Officer of Registrant (Principal Accounting Officer)
		Frank J. Cinatl, IV
		Vice President and Chief Financial
		Officer of Registrant
		(Principal Accounting Officer)

Filing Compare · ABATIX CORP