<PAGE>
                                       
                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark one)

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

                For the quarterly period ended November 30, 1998
                                       
                                      OR

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

                For the transition period from ______ to ______
                                       
                         Commission file number: 1-7736

                                TAB PRODUCTS CO.
          ---------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

           DELAWARE                                        94-1190862
--------------------------------               ---------------------------------
  (State of Incorporation)                     (IRS Employer Identification No.)

1400 PAGE MILL ROAD, PALO ALTO, CALIFORNIA                    94304
-------------------------------------------               --------------
 (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number - including area code    (650) 852-2400
                                                    --------------------
                                       
                                 NOT APPLICABLE
--------------------------------------------------------------------------------
Former name, former 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  X    No                  
                                                   -----    -----

Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date. Common shares outstanding as 
of November 30, 1998 - 5,084,889.

This report, including all exhibits and attachments, contains 37 pages.
                                                             ----


                                       1
<PAGE>
                                       
                                TAB PRODUCTS CO.

                                     INDEX

                          PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                        Page No.
<S>                                                                     <C>
ITEM 1        Financial Statements:

              Consolidated Condensed Balance Sheets
              November 30, 1998 and May 31, 1998                           3

              Consolidated Condensed Statements of Earnings
              Three months and Six months ended November 30,
              1998 and 1997                                                4

              Consolidated Condensed Statements of Cash Flows
              Six months ended November 30, 1998 and 1997                  5

              Supplemental Financial Data - Notes                          6

ITEM 2        Management's Discussion and Analysis of Financial
              Condition and Results of Operations                          9

ITEM 3        Quantitative and Qualitative Disclosure About
              Market Risks                                                17

                           PART II. OTHER INFORMATION

ITEM 4.       Submission of matters to a vote of security holders         18

ITEM 6        Exhibits                                                    18

              Signatures                                                  19
</TABLE>

                                       2
<PAGE>

                          PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                                  TAB PRODUCTS CO.
                 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
                         (000's omitted except share data)
<TABLE>
<CAPTION>

                                                              November 30,           May 31,
                                                                 1998                 1998
<S>                                                           <C>                   <C>
ASSETS
Current assets:
   Cash and cash equivalents                                    $    3,235          $    7,199
   Short-term investments                                            3,459               4,896
   Accounts receivable, less allowances of                                 
    $825 and $947 for doubtful accounts                             27,560              24,943
   Inventories                                                      12,084              11,015
   Prepaid income taxes and other expenses                           6,468               5,725
                                                                ----------          ----------

      Total current assets                                          52,806              53,778

Property, plant and equipment, net of 
   accumulated depreciation of $41,875 and
   $40,162                                                          19,960              19,063
Goodwill, net                                                        3,238               3,683
Other assets                                                         1,014                 964
                                                                ----------          ----------

Total Assets                                                    $   77,018          $   77,488
                                                                ----------          ----------
                                                                ----------          ----------

LIABILITIES AND STOCKHOLDERS' EQUITY           
Current liabilities:
   Current portion of long-term debt                            $    3,438          $    3,437
   Accounts payable                                                  9,138               6,257
   Compensation payable                                              2,059               3,910
   Other accrued liabilities                                         8,743               8,389
                                                                ----------          ----------

      Total current liabilities                                     23,378              21,993
                                                                ----------          ----------

Long-term debt                                                       6,609               7,391
                                                                ----------          ----------
Deferred taxes and other non-current
   liabilities                                                       3,586               3,207
                                                                ----------          ----------

Stockholders' equity:
   Preferred stock: $.01 par value, 
authorized - 500,000 shares, issued - none                               -                   -
   Common stock: $.01 par value, authorized - 
25,000,000 shares, issued - November 1998 - 
7,606,116 shares and May 1998 - 7,601,616 shares                        76                  76
   Additional paid-in capital                                       15,244              15,219
   Retained earnings                                                63,456              63,885
   Treasury stock: November 1998 - 2,521,227 shares 
and May 1998 - 2,432,227 shares                                    (32,006)            (31,365)
Accumulated other comprehensive income                              (3,325)             (2,918)
                                                                ----------          ----------
      Total stockholders' equity                                    43,445              44,897
                                                                ----------          ----------

Total liabilities and stockholder's equity                      $   77,018          $   77,488
                                                                ----------          ----------
                                                                ----------          ----------
</TABLE>
                                       
See Notes to Consolidated Condensed Financial Statements.

                                       3
<PAGE>

                                TAB PRODUCTS CO.
           CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
                        (000's omitted except share data)
<TABLE>
<CAPTION>

                                                                     Three Months Ended          Six Months Ended
                                                                        November 30,                November 30,
                                                                ----------------------------  -------------------------
                                                                   1998           1997           1998           1997
                                                                ----------     ----------     ----------     ----------
<S>                                                             <C>            <C>            <C>            <C>
Revenues                                                        $   39,272     $   41,573     $   77,400     $   81,016
                                                                ----------     ----------     ----------     ----------

Costs and expenses:
    Cost of revenues                                                24,221         24,057         48,098         47,578
    Selling, general and  
       administrative                                               14,568         14,644         28,416         28,606
    Research and development                                           206            224            462            448
                                                                ----------     ----------     ----------     ----------
       Total costs and expenses                                     38,995         38,925         76,976         76,632
                                                                ----------     ----------     ----------     ----------

       Operating income                                                277          2,648            424          4,384

Interest, net                                                         (133)          (163)          (271)          (331)
                                                                ----------     ----------     ----------     ----------
       Earnings before income taxes                                    144          2,485            153          4,053

Provision for income taxes                                              65          1,081             69          1,763
                                                                ----------     ----------     ----------     ----------

       Net earnings                                             $       79     $    1,404     $       84     $    2,290
                                                                ----------     ----------     ----------     ----------
                                                                ----------     ----------     ----------     ----------

Basic net earnings per share                                    $     0.02     $     0.28     $     0.02     $     0.45
                                                                ----------     ----------     ----------     ----------
                                                                ----------     ----------     ----------     ----------

Shares used in computing basic
    net earnings per share                                       5,114,414      5,096,569      5,143,079      5,052,566
                                                                ----------     ----------     ----------     ----------
                                                                ----------     ----------     ----------     ----------

Diluted net earnings per share                                  $     0.02     $     0.27     $     0.02     $     0.44
                                                                ----------     ----------     ----------     ----------
                                                                ----------     ----------     ----------     ----------

Shares used in computing diluted
    net earnings per share                                       5,148,532      5,298,089      5,221,761      5,244,716
                                                                ----------     ----------     ----------     ----------
                                                                ----------     ----------     ----------     ----------
</TABLE>

See Notes to Consolidated Condensed Financial Statements.

                                       4
<PAGE>

                                TAB PRODUCTS CO.
           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (000's omitted)
<TABLE>
<CAPTION>

                                                                       Six Months Ended
                                                                          November 30,
                                                                     1998            1997
                                                                   --------        -------
<S>                                                                <C>             <C>
Operating Activities:
     Net earnings                                                  $     84        $ 2,290
     Adjustments to reconcile net earnings to net cash
           provided (required) by operating activities:
     Depreciation and amortization                                    2,458          2,114
     Other                                                               -              81
     Changes in operating assets and liabilities:
           Accounts receivable                                       (2,676)        (1,818)
           Inventories                                               (1,049)        (1,207)
           Prepaid income taxes and other expenses                     (213)          (353)
           Other assets                                                  60             24
           Accounts payable                                           2,901            112
           Commissions payable                                       (1,842)           730
           Other accrued liabilities                                     93           (666)
                                                                   --------        -------
Net cash provided (required) by operating activities                   (184)         1,307
                                                                   --------        -------

Investing Activities:

     Purchase of property, plant and equipment, net                  (3,239)        (1,753)
     Purchases of short-term investments                             (2,961)        (4,885)
     Sales of short-term investments                                  4,398          3,723
                                                                   --------        -------
Net cash required by investing activities                            (1,802)        (2,915)
                                                                   --------        -------

Financing Activities:
     Repayment of long-term debt                                       (781)          (656)
     Proceeds from issuance of common stock                              25          1,019
     Repurchase of Treasury Stock                                      (641)
     Dividends paid                                                    (513)          (507)
                                                                   --------        -------
Net cash required by financing activities                            (1,910)          (144)
                                                                   --------        -------

Effect of exchange rate changes on cash                                 (68)          (137)
                                                                   --------        -------

Decrease in cash and cash equivalents                                (3,964)        (1,889)

Cash and cash equivalents at beginning of period                      7,199          8,568
                                                                   --------        -------

Cash and cash equivalents at end of period                         $  3,235        $ 6,679
                                                                   --------        -------
                                                                   --------        -------
</TABLE>

See Notes to Consolidated Condensed Financial Statements.

                                       5
<PAGE>

                                TAB PRODUCTS CO.

                 SUPPLEMENTAL FINANCIAL DATA - NOTES (UNAUDITED)


1.   Basis of Presentation

     The Company's unaudited condensed consolidated financial statements have 
been prepared in accordance with generally accepted accounting principles 
and, in the opinion of management, reflect all adjustments (consisting only 
of normal recurring adjustments) considered necessary to fairly state the 
Company's financial position, results of operations, and cash flows for the 
periods presented. These consolidated financial statements should be read in 
conjunction with the Company's audited consolidated financial statements 
included in the Company's Form 10-K for the fiscal year ended May 31, 1998. 
The results of operations for the six-month period ended November 30, 1998 
are not necessarily indicative of the results to be expected for any 
subsequent quarter or for the entire fiscal year ending May 31, 1999. The May 
31, 1998 balance sheet was derived from audited consolidated financial 
statements, but does not include all disclosures required by generally 
accepted accounting principles.

2.   Inventory

     Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>

                           November 30, 1998        May 31, 1998
                           -----------------     ---------------
<S>                        <C>                   <C>
     Finished goods          $         6,214     $         4,265
     Work in process                     612               2,704
     Raw materials                     5,258               4,046
                             ---------------     ---------------
                             $        12,084     $        11,015
                             ---------------     ---------------
                             ---------------     ---------------
</TABLE>
3.   Dividends

     Dividends declared for the six month periods ended November 30, 1998 and 
1997 were as follows:
<TABLE>
<CAPTION>

               Record Date    Shares Outstanding    Dividend Per Share
               -----------    ------------------    ------------------
<S>                           <C>                   <C>
           August 25, 1998     5,171,514             $   0.05
           November 25, 1998   5,084,889             $   0.05
           August 25, 1997     5,041,576             $   0.05
           November 25, 1997   5,103,014             $   0.05
</TABLE>


                                       6
<PAGE>

Item 1.  Financial Statements (continued)

Tab Products Co., Notes to Consolidated Condensed Financial Statements
(continued)

4.   Net Earnings Per Share

     Basic earnings per share is computed by dividing net earnings by the 
weighted average common shares outstanding for the period while diluted 
earnings per share also includes the dilutive impact of stock options. Basic 
and diluted earnings per share for the quarters and six-months ended November 
30, 1998 and 1997, respectively, are calculated as follows (in thousands, 
except share data):
<TABLE>
<CAPTION>
                                      Three Months Ended       Six Months Ended
                                         November 30,            November 30,
                                      1998         1997        1998         1997   
                                  -----------  -----------  ----------  -----------
<S>                               <C>          <C>          <C>         <C>
Net earnings                      $        79  $     1,404  $       84  $     2,290
                                  -----------  -----------  ----------  -----------
                                  -----------  -----------  ----------  -----------
Basic:
  Weighted average common shares
  outstanding used in computing
  basic net earnings per share      5,114,414    5,096,569   5,143,079    5,052,566
                                  -----------  -----------  ----------  -----------
                                  -----------  -----------  ----------  -----------
Basic net earnings per share      $      0.02  $      0.28  $     0.02  $      0.45
                                  -----------  -----------  ----------  -----------
                                  -----------  -----------  ----------  -----------
Diluted:
  Weighted average common 
  shares outstanding                5,114,414    5,096,569   5,143,079    5,052,566
Dilutive options outstanding           34,118      201,520      78,682      192,150
                                  -----------  -----------  ----------  -----------
Shares used in computing diluted
  net earnings per share            5,148,532    5,298,089   5,221,761    5,244,716
                                  -----------  -----------  ----------  -----------
                                  -----------  -----------  ----------  -----------
Diluted net earnings per share    $      0.02  $      0.27  $     0.02  $      0.44
                                  -----------  -----------  ----------  -----------
                                  -----------  -----------  ----------  -----------
</TABLE>
5.   Comprehensive Income

     The Company has adopted Statement of Financial Accounting Standards 
("SFAS") No. 130, "Reporting Comprehensive Income," as of the first quarter 
of fiscal 1999. SFAS No. 130 establishes new rules for the reporting and 
display of comprehensive income and its components; however, it has no impact 
on the Company's net income or total stockholders' equity.

     The components of comprehensive income, net of tax, are as follows (in 
thousands):
<TABLE>
<CAPTION>
                                     Three Months Ended        Six Months Ended
                                         November 30,             November 30,
                                      1998         1997        1998         1997   
                                  -----------  -----------  ----------  -----------
<S>                               <C>          <C>          <C>         <C>
Net earnings                      $        79   $    1,404  $       84  $     2,290
Foreign currency translation               30         (326)       (407)        (504)
                                  -----------  -----------  ----------  -----------
Comprehensive income (loss)       $       109   $    1,078  $     (323) $     1,786
                                  -----------  -----------  ----------  -----------
                                  -----------  -----------  ----------  -----------
</TABLE>
                                       7
<PAGE>

Item 1.  Financial Statements (continued)

Tab Products Co., Notes to Consolidated Condensed Financial Statements 
(continued)

     Accumulated other comprehensive income, net of tax, presented on the 
accompanying consolidated condensed balance sheets consists of the following 
(in thousands):

<TABLE>
<CAPTION>
                                November 30, 1998        May 31, 1998
                                -----------------     ---------------
<S>                             <C>                   <C>
Foreign currency translation      $          (907)    $          (500)
Minimum pension liability                  (2,418)             (2,418)
                                  ---------------     ---------------
Accumulated other 
  comprehensive income (loss)     $        (3,325)    $        (2,918)
                                  ---------------     ---------------
                                  ---------------     ---------------
</TABLE>
6.   Stock Repurchase

     During the three months ended November 30, 1998, the Company repurchased 
89,000 shares of Common Stock under the Company's authorized repurchase 
program at a cost of $641,000. As of November 30, 1998, the Company intends 
to repurchase an additional 211,000 shares under the previously announced 
common stock repurchase program. 

7.   Recently Issued Accounting Pronouncements

     In June 1997, the FASB issued Statement of Financial Accounting 
Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and 
Related Information." The Statement establishes standards for the manner in 
which public business enterprises report information about operating segments 
in annual financial statements and requires those enterprises to report 
selected information about operating segments in interim financial reports 
issued to shareholders. This statement is effective for annual financial 
statements for periods beginning after December 15, 1997, and for interim 
periods after the first year of adoption. The Company has not determined the 
impact of the adoption of this new accounting standard on its consolidated 
financial statement disclosures.

     In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures 
about Pensions and Other Postretirement Benefits," which the Company is 
required to adopt for its fiscal 1999 annual financial statements. This 
statement revises existing disclosure requirements for pension and other 
postretirement benefit plans thereby intending to improve the 
understandability of benefit disclosures, eliminate certain requirements that 
the Financial Accounting Standards Board believes are no longer necessary, 
and standardize footnote disclosures. This statement requires comparative 
information for earlier years to be restated. The Company has not determined 
the impact of the adoption of this new accounting standard on its 
consolidated financial statement disclosures.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative 
Instruments and Hedging Activities," which defines derivatives, requires that 
all derivatives be carried at fair value, and provides for hedging accounting 
when certain conditions are met. This statement is effective for all fiscal 
quarters of fiscal years beginning after June 15, 1999. The Company expects 
to adopt this Standard as of the beginning of its fiscal year 2001. The 
effect of adopting the Standard is currently being evaluated, but is not 
expected to have a material effect on the Company's financial position or 
results of operations.

                                       8
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This report, including without limitation the following section regarding 
Management's Discussion and Analysis of Financial Condition and Results of 
Operations, contains forward-looking statements within the meaning of Section 
27A of the Securities Act of 1933, as amended, and Section 21E of the 
Securities Exchange Act of 1934, as amended, regarding the Company and its 
business, financial condition, results of operations and prospects.  Words 
such as "experts," "anticipates," "intends," "plans," "believes," "seeks," 
"foreseeable," "estimates," and similar expressions or variations of such 
words are intended to identify forward-looking statements, but are not the 
exclusive means of identifying forward-looking statements in this report.  
Additionally, statements concerning future matters such as the development of 
new products, enhancements or technologies, possible changes in legislation 
and other statements regarding matters that are not historical are 
forward-looking statements.

Although forward-looking statements in this report reflect the good faith 
judgement of the Company's management, such statements can only be based on 
facts and factors currently known by the Company.  Consequently, 
forward-looking statements are inherently subject to risks and uncertainties 
and actual results and outcomes may differ materially from the results and 
outcomes discussed in the forward-looking statements.  Factors that could 
cause or contribute to such differences in results and outcomes include 
without limitation those discussed in "Business Environment and Risk Factors" 
as well as those discussed elsewhere in this report.  Readers are urged not 
to place undue reliance on these forward-looking statements, which speak only 
as of the date of this report.  Readers are urged to carefully review and 
consider the various disclosures made by the Company in this report, which 
attempt to advise interested parties of the risks and factors that may affect 
the Company's business, financial condition, results of operations and 
prospects.

The following discussion of the Company's financial condition and results of 
operations should be read in conjunction with the Consolidated Financial 
Statements of the Company.

FINANCIAL CONDITION

At November 30, 1998 the Company had cash and short-term investments of $6.7 
million, a decrease of $5.4 million from the $12.1 million at May 31, 1998.  
The Company's working capital position at November 30, 1998 was $29.4 million 
as compared with $31.8 million at May 31, 1998.  The decrease in cash and 
working capital are the result of investments in new enterprise software, 
hardware infrastructure improvements, stock repurchases, debt repayments and 
foreign exchange impacts. Additionally, the sales cycle for larger scale 
projects is substantially longer than the Company's historical sales-to-delivery
cycle resulting in additional working capital requirements. The current ratio 
of 2.3 at November 30, 1998 was slightly lower than the current ratio of 2.4 
reported for May 31, 1998.  Inventories at November 30, 1998 were $12.1 
million as compared to $11.0 million at May 31, 1998.  The increase in 
inventory levels was planned to meet product demands in the September to 
December time frame. Management believes that the Company's cash and cash 
equivalents, available credit facilities and operational cash flow will 
adequately finance anticipated growth, capital expenditures and debt 
obligations for the foreseeable future.

                                       9
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Financial Condition (continued)

Investments in property, plant and equipment, which were primarily focused on 
enterprise management information systems and associated infrastructure 
investments and in retainable parts to support the growth of service 
contracts in the Company's field services operation, were $3.2 million for 
the six months ended November 30, 1998.  Capital expenditures to support 
operations for fiscal 1999 are expected to be in the range of $6.5 to $7.0 
million.

For the six month period ended November 30, 1998 the Company paid cash 
dividends of $513,000 as compared to $507,000 in the prior fiscal year.

The Company has an unsecured revolving line of credit of $15 million with a 
bank which expires on October 31, 2000.  There were no borrowings outstanding 
under the line of credit at November 30, 1998.

RESULTS OF OPERATIONS

REVENUES for the second quarter of fiscal 1999 amounted to $39.3 million, 
down $2.3 million or 5.5% from the $41.6 million reported in the second 
quarter of fiscal 1998. Revenues for the six months ended November 30, 1998 
were $77.4 million, down $3.6 million or 4.5% from revenues of $81.0 million 
reported in the first six months of the prior fiscal year.  As in the 
Company's first quarter, the Company continued to experience revenue 
decreases associated with products previously withdrawn from its sales 
channels.In addition, the Company experienced lower sales in manufactured 
products offset somewhat by increased sales in technology products and 
services in the domestic market.  International revenues were up slightly 
year over year even though impacted by adverse foreign exchange fluctuations. 

COST OF REVENUES, as a percentage of revenues, was 61.7% for the second 
quarter of fiscal 1999 as compared to the 57.9% reported in the second 
quarter of fiscal 1998.  Cost of revenues for the second quarter was $24.2 
million as compared to the $24.1 million reported in the comparable quarter 
of fiscal 1998. For the six months ended November 30, 1998 cost of revenues 
was 62.1% as compared to 58.7% in the first six months of the prior fiscal 
year.  The increase in cost of revenues as a percentage of revenue was the 
result of both lower revenues, sales mix and increased manufacturing costs 
due to lower factory efficiencies. 

OPERATING EXPENSES were $14.8 million or 37.6% of total revenues for the 
second quarter of fiscal 1999 as compared to $14.9 million or 35.8% of total 
revenues for the second quarter of fiscal 1998.  For the six months ended 
November 30, 1998 Operating Expenses were $28.9 million or 37.3% of total 
revenues for the first six months of fiscal 1999 as compared to $29.1 million 
or 35.9% of total revenues for the prior fiscal year.  The increase in 
operating expenses as a percentage of revenues was primarily driven by 
increases in defined benefit pension costs, sales training, systems 
development costs, technology support costs and continued overlap of a new 
sales compensation plan implemented at the start of the fiscal year.  
Offsetting these increases were reductions in expenses for operating the 
Company's sales branches and reduction of management incentive plan expense 
as a result of lower revenues in the first six months.

                                      10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Results of Operations (continued)

INTEREST EXPENSE, net, was $133,000 in the second quarter of fiscal 1999 as 
compared to $163,000 in the second quarter of fiscal 1998.  For the six 
months ended November 30, 1998 interest expense, net, was $271,000 as 
compared to $331,000 in the prior fiscal year.  The decrease for the three 
and six months ended November 30, 1998 was primarily due to a $3.5 million 
reduction in the overall debt level as compared to November 30, 1997 as a 
result of debt repayments.

EARNINGS PER SHARE for the three months ended November 30, 1998 were $.02 per 
share for both basic and diluted shares compared to $.28 and $.27 per basic 
and diluted shares, respectively, for the three months ended November 30, 
1997.  For the six months ended November 30, 1998 earnings per share were 
$.02 per share for both basic and diluted shares compared to $.45 and $.44 
per basic and diluted shares, respectively, for the prior fiscal year.

Management System Upgrades and Year 2000 Compliance

The Year 2000 issue is the result of potential problems with computer systems 
or any equipment with computer chips that use dates where the date has been 
stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock 
or date recording mechanism, including date sensitive software which uses 
only two digits to represent the year, may recognize a date incorrectly 
(e.g., interpret the two digits 00 as the year 1900 rather than the year 
2000). This could result in a system failure or miscalculations causing 
disruption of operations, including among other things, a temporary inability 
to process transactions, send invoices, or engage in similar activities.

The Company has undertaken a program to address Year 2000 compliance with 
respect to the following: (i) the Company's information technology hardware 
and software ("IT systems"); (ii) the Company's non-information technology 
systems, such as buildings, plant, equipment, telephone systems, and other 
infrastructure systems that may contain microcontroller technology ("non-IT 
systems"); and (iii) exposure from third parties with which the Company does 
business.

The Company's plan with regard to the Year 2000 issue for each of the above 
involves the following phases: (i) assessment of systems to determine the 
extent to which the Company may be vulnerable to the Year 2000 issue; (ii) 
the development of remedies to address problems discovered in the assessment 
phase; (iii) the testing of such remedies; and (iv) the preparation of 
contingency plans to address potential worst case scenarios should the 
remedies not be successful.

The Company has analyzed most of its IT systems in an effort to identify any 
systems that are not Year 2000 compliant and implement any changes required 
to make such systems Year 2000 compliant. The result to date of the analysis 
is that most of the IT systems used by the Company are not Year 2000 
compliant. A Company-wide enterprise software solution was chosen as the 
primary means to achieve Year 2000 compliance. The software was selected to 
add functionality and efficiency in the Company's business processes in 
addition to achieving Year 2000 compliance. 

                                      11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Management System Upgrades and Year 2000 Compliance (continued)

The software is being implemented in stages and in each of the Company's 
operating locations. The first stage, which comprises most of the 
manufacturing, all sales and all financial modules, is planned to be tested 
and in operation by the end of March 1999. The second stage includes project 
accounting, human resources and the remaining manufacturing operations.  This 
stage is planned to be completed by the end of August 1999. Remediation and 
testing of IT systems not replaced are planned to be completed by September 
1999.

The Company is assessing its significant non-IT systems that may contain 
embedded microcontrollers to determine what remediation efforts may be 
necessary. The assessment is planned to be completed by July 1999. To date, 
certain non-IT systems have been tested and most such tested non-IT systems 
have been evaluated as being Year 2000 compliant. Remediation plans for those 
systems not Year 2000 compliant are planned to be in place by July 1999.

The Company is taking steps designed to assess the Year 2000 readiness of 
certain suppliers whose possible lack of Year 2000 readiness could, in the 
Company's judgment, cause a materially adverse impact on the Company's 
business, results of operations or financial condition. The Company has 
conducted extensive inquiries of such suppliers compliance status during the 
last year and expects to complete the inquires over the next six months.

The Company believes that its most reasonably likely worst case year 2000 
scenarios would relate to problems with the systems of third parties rather 
than with the Company's internal systems or its products. It is clear that 
the Company has the least ability to assess and remediate the year 2000 
problems of third parties and the Company believes the risks are greatest 
with infrastructure (e.g. electricity supply, water and sewer service), 
telecommunications, transportation supply chains and critical suppliers of 
materials.

The Company's production is conducted in domestic and foreign facilities. 
Each location relies on local private and governmental suppliers for 
electricity, water, sewer and other needed supplies. Failure of an 
electricity grid or an uneven supply of power, as an example, would be a 
worst case scenario that would completely shut down the affected facilities.  
Electrical failure could also shut down airports and other transportation 
facilities. The Company does not currently maintain facilities which would 
allow it to generate its own electrical or water supply in lieu of that 
supplied by utilities. To the extent possible, the Company is working with 
the infrastructure suppliers for its manufacturing sites, major subcontractor 
sites and relevant transportation hubs to seek to better ensure continuity of 
infrastructure services.  Contingency planning regarding major infrastructure 
failure generally emphasizes the shift of production to other, unaffected 
sites, if appropriate, or planned increases in inventory levels of specific 
products. 

A worst case scenario involving a critical supplier of materials would be the 
partial or complete shutdown of the supplier and its resulting inability to 
provide critical supplies to the Company on a timely basis. The Company does 
not maintain the capability to replace most third party supplies with 
internal production. Where efforts to work with critical suppliers to ensure 
year 2000

                                      12
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Management System Upgrades and Year 2000 Compliance (continued)

capability have not been successful, contingency planning generally 
emphasizes the identification of substitute and second-source suppliers, and 
in certain limited situations includes a planned increase in the level of 
inventory carried.

The Company is not in a position to identify or to avoid all possible 
scenarios; however, the Company is currently assessing scenarios and taking 
steps to mitigate the impacts of various scenarios if they were to occur. 
This contingency planning will continue through 1999 as the Company learns 
more about the preparations and vulnerabilities of third parties regarding 
year 2000 issues. Due to the large number of variables involved, the Company 
cannot provide an estimate of the damage it might suffer if any of these 
scenarios were to occur.

The total IT system upgrade project, which includes the Year 2000 
remediation, is estimated to cost approximately $1.6 to $2.0 million of which 
approximately $1.4 million has been spent to date. Since the system 
replacement costs are related to an overall systems initiative, the Year 2000 
compliance costs cannot be reasonably determined.  The costs and time 
schedules for the IT systems and non-IT systems changes are based on 
management's best estimates.

BUSINESS ENVIRONMENT AND RISK FACTORS

The Company's future operating results may be affected by various trends and 
factors which the Company must successfully manage in order to achieve 
favorable operating results. In addition, there are trends and factors beyond 
the Company's control which affect its operations. In accordance with the 
provisions of Section 27A of the Securities Act of 1933, as amended, and 
Section 21E of the Securities Exchange Act of 1934, as amended, the 
cautionary statements set forth below identify important factors that could 
cause actual results to differ materially from those in any forward-looking 
statements contained in this report. Such trends and factors include, but are 
not limited to, adverse changes in general economic conditions or conditions 
in the specific markets for the Company's products, governmental regulation, 
fluctuations in foreign exchange rates, and other factors, including those 
listed below.

Distribution Channels

The Company is currently pursuing a strategy to refine and expand its 
distribution channels.  The Branch direct sales strategy has been shifted to 
focus on projects with larger customers that bundle products and services as 
a way of providing value-added solutions to the Company's customers.

The Company is also seeking to expand its call center operations and to 
direct replenishment business through this efficient distribution method.  In 
conjunction with handling inbound sales activity a new initiative is underway 
to generate sales through the use of outbound telemarketing.

The Company has notified its existing independent distributors (indirect 
channel) that effective June 1, 1999 the existing distributor contract is 
canceled.  A new contract has been offered that eliminates the exclusive 
territory rights in the 

                                      13
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Business Environment and Risk Factors (continued)

existing contract with other material terms and conditions remaining 
substantially the same.  The Company believes the removal of exclusivity is 
crucial to the Company's ability to serve its larger nationwide customers 
where an independent's resources cannot support the customer's professional 
services, technology and project management needs.  As of November 30, 1998 
approximately one third of the current independent distributors have signed 
the new contract.  The Company is working to achieve acceptance of the new 
dealer agreement with those who remain non-committal.  The Company is also 
seeking to expand its indirect distribution with the addition of dealer to 
Branch territories to focus on small to mid-size customers.

These changes in distribution, including the potential loss of existing 
independent distributors, may disrupt the selling process of the Company 
resulting in lower sales.  Additionally, the sales cycle for larger scale 
projects is substantially longer than the Company's historical 
sales-to-delivery cycle resulting in additional working capital requirements. 
Penetration of larger customers may not happen as quickly as anticipated and 
may result in higher selling costs.

Retaining and Attracting Qualified Personnel

The Company's future performance may depend in significant part upon 
attracting and retaining key senior management, manufacturing, sales and 
marketing personnel. Competition for such personnel is intense and the 
inability to retain its current key personnel or to attract, assimilate or 
retain other highly qualified personnel in the future on a timely basis could 
have a material adverse effect on the Company's business, results of 
operations and financial condition.

Fluctuations in Operating Results

Factors affecting the Company's operating results and gross margins include 
the volume of product sales, competitive pricing pressures, the ability of 
the Company to match supply with demand, changes in product and customer mix, 
market acceptance of new or enhanced versions of the Company's products and 
services, changes in the channels through which the Company's products and 
services are distributed, timing of new product announcements and 
introductions by the Company and its competitors, fluctuations in product 
costs, variations in manufacturing cycle time, fluctuations in manufacturing 
utilization, the ability of the Company to achieve manufacturing efficiencies 
with its new and existing products, increased research and development 
expenses, exchange rate fluctuations, a change in the Company's effective tax 
rate and changes in general economic conditions. All of these factors are 
difficult to forecast and these or other factors can materially affect the 
Company's quarterly or annual operating results or gross margins.

Competition

The Company expects competition to increase in the future from existing 
competitors and from other companies that may enter the Company's existing or 
future markets with similar or alternative document management solutions that

                                      14
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Business Environment and Risk Factors (continued)

may be less costly or provide additional features. Such competition could 
result in lower gross margins in the future, if the Company's average selling 
prices decrease faster than its costs and could result in lost sales.

Dependence on Sole Source Suppliers

The Company purchases several critical components from single or sole source 
vendors for which alternative sources are not currently developed. 
Development of alternative suppliers would require a significant amount of 
time to qualify in the case of certain of the Company's components. The 
Company does not maintain long-term supply agreements with any of these 
vendors. The inability to develop alternative sources for these single or 
sole source components or to obtain sufficient quantities of these components 
could result in delays or reductions in product shipments which could 
adversely affect the Company's business, financial condition and results of 
operations.

New Processes and Products and Manufacturing Efficiencies

There can be no assurance that the Company's manufacturing facilities will 
achieve or maintain acceptable manufacturing efficiencies in the future. The 
inability of the Company to achieve planned efficiencies from its 
manufacturing facilities could have an adverse effect on the Company's 
business, financial condition and results of operations. Any problems 
experienced by the Company in its current or future transitions to new 
processes and products could have a material adverse effect on the Company's 
business, financial condition and results of operations.

Backlog

The backlog of orders has historically not been a significant factor in 
understanding the business of the Company because the order-to-ship cycle was 
primarily completed within 30 days and revenue is generally recognized upon 
product shipment.  The Branch channel shift to projects with large customers 
has created a lengthening order-to-execution period and a resultant increase 
in backlog.  Additionally, the growing professional services component of 
project sales is recognized as revenue when the project is completed 
resulting in a longer order-to-revenue cycle for a component of the Company's 
revenue stream.

Government Sales

With the government, both Federal and State/Local comprising 10% of the 
Company's revenues, the Company is primarily exposed to risks from reductions 
in budget allocations to support regulation and administrative offices. The 
current reinventing government initiative opens opportunities to help the 
government streamline workflow processes, reduce paperwork and increase 
customer service which may provide short-term opportunities for the Company. 
However, the long-term effect of a government initiative to streamline 
processes could have a negative impact on the Company's business, financial 
condition and results of operations.

                                      15
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Business Environment and Risk Factors (continued)

Patents, Proprietary Rights and Related Litigation

The Company relies on a combination of patents, trademarks, copyright and 
trade secret laws, confidentiality procedures and licensing arrangements to 
protect its intellectual property rights. The Company has been notified in 
the past and the Company may be notified in the future of claims that they 
may be infringing upon patents or other intellectual property rights owned by 
third parties. There can be no assurance that in the future any patents held 
by the Company will not be invalidated, that patents will be issued for any 
of the Company's pending applications or that any claims allowed from 
existing or pending patents will be of sufficient scope or strength or be 
issued in the primary countries where the Company's products can be sold to 
provide meaningful protection or any commercial advantage to the Company. 
Additionally, competitors of the Company may be able to design around the 
Company's patents.

Risks Associated with International Sales

In fiscal 1998, international sales accounted for approximately 20% of the 
Company's total revenues and in the first six months of fiscal 1999 they 
accounted for approximately 19% of the Company's total revenues. Fluctuations 
in currencies could adversely affect the Company's business, financial 
condition and results of operations. In addition, gains and losses on the 
conversion to United States dollars of accounts receivable, accounts payable 
and other monetary assets and liabilities arising from international 
operations may contribute to fluctuations in the Company's results of 
operations. Because sales of the Company's products have been denominated to 
date primarily in United States dollars, increases in the value of the United 
States dollar could increase the price of the Company's products so that they 
become relatively more expensive to customers in the local currency of a 
particular country, leading to a reduction in sales and profitability in that 
country. The Company is subject to the risks of conducting business 
internationally, including foreign government regulation and general 
geopolitical risks such as political and economic instability, potential 
hostilities and changes in diplomatic and trade relationships. Manufacturing 
and sales of the Company's products may also be materially adversely affected 
by factors such as unexpected changes in, or imposition of, regulatory 
requirements, tariffs, import and export restrictions and other barriers and 
restrictions, longer payment cycles, greater difficulty in accounts 
receivable collection, potentially adverse tax consequences, the burdens of 
complying with a variety of foreign laws and other factors beyond the 
Company's control. In addition, the laws of certain foreign countries in 
which the Company's products are or may be developed, manufactured or sold, 
may not protect the Company's intellectual property rights to the same extent 
as do the laws of the United States and thus make piracy of the Company's 
products a more likely possibility. There can be no assurance that these 
factors will not have a material adverse effect on the Company's business, 
financial condition or results of operations.

                                      16
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)

Business Environment and Risk Factors (continued)

Management of Growth

The Company has increased its expense levels to support its recent growth. 
The Company expects to continue to increase its operating expenses by hiring 
additional personnel to support expected growth, increased marketing efforts 
and additional research and development activities. If the Company does not 
achieve increased levels of revenues commensurate with these increased levels 
of operating expenses, or if the Company's revenues decrease or do not meet 
the Company's expectations for a particular period, the Company's business, 
financial condition and results of operations will be materially adversely 
affected.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

                  Not applicable.


                                       
                          PART II: OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Not applicable.

ITEM 2.  CHANGES IN SECURITIES

         Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

                                      17
<PAGE>

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

          (a)   The company held its annual meeting of stockholders
                on October 29, 1998.
          (b)   All of management's nominees as listed in the proxy
                statement were elected.
          (c)   The votes for each Director are indicated below:
<TABLE>
<CAPTION>
                Director              For      Withheld Authority
                --------              ---      ------------------
                <S>                <C>         <C>
                R. R. Augsburger   4,632,095        55,109
                R. S. Cecil        4,630,794        56,410
                K. S. Hanson       4,630,694        56,510
                P. C. Kantz        4,471,757       215,447
                J. K. Myers        4,089,379       597,825
                H. A. Wolf         4,473,685       213,519
</TABLE>
          (d)   The company's appointment of Deloitte & Touche LLP as the
                independent accountants for the fiscal year ending May 31, 1999
                was approved.  The vote is indicated below:
<TABLE>
                <S>                <C>
                For                4,645,194
                Against               13,260
                Abstain               28,750
                Non-Vote                   0
</TABLE>

ITEM 5.  OTHER INFORMATION

         Not applicable.

ITEM 6.  EXHIBITS

         (a)   10.1  Bank of America Business Loan Agreement dated November 1,
                     1998
               27    Financial Data Schedule

         (b)   Reports on Form 8-K

               None


                                      18
<PAGE>

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.

                                                 TAB PRODUCTS CO.
                                        ----------------------------------
                                                   (Registrant)


Date:    January 14, 1999                /s/ David J. Davis
                                        ---------------------------------------
                                        David J. Davis, Senior Vice
                                        President, Operations and Chief
                                        Financial Officer

Date:    January 14, 1999               /s/ William R. Kinzie
                                        ---------------------------------------
                                        William R. Kinzie, Corporate
                                        Controller and Chief Accounting
                                        Officer


                                      19