<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 August 31, 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
August 31, 1998 - 5,171,514.

This report, including all exhibits and attachments, contains 19 pages.


<PAGE>

                                TAB PRODUCTS CO.

                                      INDEX

                          PART I. FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                                                                        Page No.
<S>           <C>                                                       <C>
ITEM 1        Financial Statements:

              Consolidated Condensed Balance Sheets
              August 31, 1998 and May 31, 1998                             3

              Consolidated Condensed Statements of Earnings
              Three months ended August 31,
              1998 and 1997                                                4

              Consolidated Condensed Statements of Cash Flows
              Three months ended August 31,
              1998 and 1997                                                5

              Supplemental Financial Data - Notes                          6

ITEM 2        Management's Discussion and Analysis of Financial
              Condition and Results of Operations                         10

ITEM 3        Quantitative and Qualitative Disclosure About
              Market Risks                                                16

                           PART II. OTHER INFORMATION

ITEM 6        Exhibits                                                    17

              Signatures                                                  18
</TABLE>


<PAGE>

                          PART 1: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                TAB PRODUCTS CO.
                CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
                        (000's omitted except share data)

<TABLE>
<CAPTION>

ASSETS                                              August 31, 1998      May 31, 1998
                                                    ---------------   ---------------
<S>                                                 <C>               <C>
Current assets:
   Cash and cash equivalents                        $         4,216   $         7,199
   Short-term investments                                     4,402             4,896
   Accounts receivable, less allowances of
     $856 and $947 for doubtful accounts                     24,974            24,943
   Inventories                                               11,038            11,015
   Prepaid income taxes and other expenses                    6,001             5,725
                                                    ---------------   ---------------
     Total current assets                                    50,631            53,778

Property, plant and equipment, net of accumulated
   depreciation of $40,774 and $40,162                       20,365            19,063
Goodwill, net                                                 3,282             3,683
Other assets                                                  1,080               964
                                                    ---------------   ---------------
                                                    $        75,358   $        77,488
                                                    ---------------   ---------------
                                                    ---------------   ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt                $         3,438   $         3,437
   Accounts payable                                           6,415             6,257
   Compensation payable                                       2,372             3,910
   Other accrued liabilities                                  8,721             8,389
                                                    ---------------   ---------------
     Total current liabilities                               20,946            21,993
                                                    ---------------   ---------------
Long-term debt                                                7,312             7,391
                                                    ---------------   ---------------
Deferred taxes and other non-current liabilities              2,883             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 - August 1998
      - 7,603,741 shares and May 1998
      - 7,601,616 shares                                         76                76
   Additional paid-in capital                                15,230            15,219
   Retained earnings                                         63,631            63,885
   Treasury stock: August 1998 and May 1998 -
      2,432,227 shares                                      (31,365)          (31,365)
   Accumulated other comprehensive income                    (3,355)           (2,918)
                                                    ---------------   ---------------
        Total stockholders' equity                           44,217            44,897
                                                    ---------------   ---------------
                                                    $        75,358   $        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
                                                      August 31
                                              --------------------------
                                                  1998           1997
                                              -----------    -----------
<S>                                           <C>            <C>
Revenues                                      $    38,128    $    39,443
                                              -----------    -----------
Costs and expenses:
   Cost of revenues                                23,877         23,521
   Selling, general and administrative             13,848         13,962
   Research and development                           256            224
                                              -----------    -----------
     Total costs and expenses                      37,981         37,707
                                              -----------    -----------
     Operating income                                 147          1,736

Interest, net                                        (138)          (168)
                                              -----------    -----------
     Earnings before income taxes                       9          1,568

Provision for income taxes                              4            682
                                              -----------    -----------
     Net earnings                             $         5    $       886
                                              -----------    -----------
                                              -----------    -----------
Basic net earnings per share                  $      0.00    $      0.18
                                              -----------    -----------
                                              -----------    -----------
Shares used in computing basic net 
   earnings per share                           5,171,432      5,009,041
                                              -----------    -----------
                                              -----------    -----------
Diluted net earnings per share                $      0.00    $      0.17
                                              -----------    -----------
                                              -----------    -----------

Shares used in computing diluted net 
   earnings per share                           5,297,529      5,181,643
                                              -----------    -----------
                                              -----------    -----------
</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>

                                                                 Three Months Ended
                                                                      August 31
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Operating Activities:
   Net earnings                                               $        5    $      886
   Adjustments to reconcile net earnings to net cash
      provided by operating activities:
   Depreciation and amortization                                   1,204         1,086
   Other                                                              --           (26)
   Changes in operating assets and liabilities:
      Accounts receivable                                           (301)          272
      Inventories                                                   (138)         (922)
      Prepaid income taxes and other expenses                       (297)          (36)
      Other assets                                                   (64)           53
      Accounts payable                                               239          (356)
      Commissions payable                                         (1,528)         (546)
      Other accrued liabilities                                      201          (255)
                                                              ----------    ----------
       Net cash provided (required) by operating activities         (679)          156
                                                              ----------    ----------


Investing Activities:

   Purchase of property, plant and equipment, net                 (2,391)         (916)
   Purchases of short-term investments                            (1,467)       (2,934)
   Sales of short-term investments                                 1,961         1,741
                                                              ----------    ----------
       Net cash required by investing activities                  (1,897)       (2,109)
                                                              ----------    ----------

Financing Activities:

  Repayment of long-term debt                                        (78)          (78)
  Proceeds from issuance of common stock                              11           647
  Dividends paid                                                    (259)         (250)
                                                              ----------    ----------
       Net cash provided (required) by financing activities         (326)          319
                                                              ----------    ----------

Effect of exchange rate changes on cash                              (81)          (14)
                                                              ----------    ----------

Decrease in cash and cash equivalents                             (2,983)       (1,648)

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

                                                              ----------    ----------
Cash and cash equivalents at end of period                    $    4,216    $    6,920
                                                              ----------    ----------
                                                              ----------    ----------
</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 three-month period ended August 31, 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>
                             August 31, 1998       May 31, 1998
                             ---------------     ---------------
     <S>                     <C>                 <C>
     Finished goods          $         6,003     $         4,265
     Work in process                     636               2,704
     Raw materials                     4,399               4,046
                             ---------------     ---------------
                             $        11,038     $        11,015
                             ---------------     ---------------
                             ---------------     ---------------
</TABLE>

3.   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 ended August 31, 1998 and 
1997, respectively, are calculated as follows (in thousands, except per share 
data):

                                       6
<PAGE>



     The following table sets forth the computation of net earnings per share
(in thousands, except per share data):

<TABLE>
<CAPTION>

                                           Three Months Ended
                                   August 31, 1998   August 31, 1997
                                   ---------------   ---------------
<S>                                <C>               <C>
Net earnings                       $             5   $           886
                                   ---------------   ---------------
                                   ---------------   ---------------
Basic:
  Weighted average common shares
  outstanding used in computing
  basic net earnings per share           5,171,432         5,009,041
                                   ---------------   ---------------
                                   ---------------   ---------------
Basic net earnings per share       $          0.00   $          0.18
                                   ---------------   ---------------
                                   ---------------   ---------------
Diluted:
  Weighted average common shares
  outstanding                            5,171,432         5,009,041
Dilutive options outstanding               126,097           172,602
                                   ---------------   ---------------
Shares used in computing diluted
  net earnings per share                 5,297,529         5,181,643
                                   ---------------   ---------------
                                   ---------------   ---------------
Diluted net earnings per share     $          0.00   $          0.17
                                   ---------------   ---------------
                                   ---------------   ---------------
</TABLE>

4.   Dividends

     Dividends declared for the three month periods ended August 31, 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
           August 25, 1997     5,041,576             $   0.05
</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.


                                       7
<PAGE>


     The components of comprehensive income, net of tax, are as follows (in
thousands):

<TABLE>
<CAPTION>

                                         Three Months Ended
                                  August 31, 1998     August 31, 1997
                                  ---------------     ---------------
<S>                               <C>                 <C>
Net earnings                      $             5     $           886

Foreign currency translation                 (437)               (178)
                                  ---------------     ---------------
Comprehensive income (loss)       $          (432)    $           708
                                  ---------------     ---------------
                                  ---------------     ---------------
</TABLE>

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

<TABLE>
<CAPTION>

                                  August 31, 1998       May 31, 1998
                                  ---------------     ---------------
<S>                               <C>                 <C>
Foreign currency translation      $          (937)    $          (500)
Minimum pension liability                  (2,418)             (2,418)
                                  ---------------     ---------------
Accumulated other 
  comprehensive income (loss)     $        (3,355)    $        (2,918)
                                  ---------------     ---------------
                                  ---------------     ---------------
</TABLE>

6.   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


                                       8
<PAGE>

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. Although the Company has
not fully assessed the implications of this new standard, the Company does not
believe adoption of this standard will have a material impact on the Company's
financial position or results of operations.


                                       9
<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
"expects," "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
judgment 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 August 31, 1998 the company had cash and short-term investments of $8.6
million, a decrease of $3.5 million from the $12.1 million at May 31, 1998. The
company's working capital position at August 31, 1998 was $29.7 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 and hardware
infrastructure improvements. The current ratio of 2.4 at August 31, 1998 was the
same as that reported for May 31, 1998. Inventories at August 31, 1998 and May
31, 1998 were $11.0 million. 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.


                                       10
<PAGE>


Investments in property, plant and equipment, which were primarily focused on
enterprise management information systems and associated infrastructure, were
$2.4 million for the three months ended August 31, 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 three month period ended August 31, 1998 the company paid cash dividends
of $259,000 as compared to $250,000 in the prior fiscal year.

The company has an unsecured revolving line of credit of $10 million with a 
bank which expires on October 31, 1998. The company received a commitment 
letter on October 14, 1998 from the bank to renew the line of credit in the 
amount of $15 million for a period of two years. There were no borrowings 
outstanding under the line of credit at August 31, 1998.

RESULTS OF OPERATIONS

Revenues for the first quarter of fiscal 1999 amounted to $38.1 million, down
$1.3 million or 3.3% from the $39.4 million reported in the first quarter of
fiscal 1998. The decreased revenues were the result of lower revenues from both
domestic operations ($.7 million) and international operations ($.6 million).
During the first quarter of fiscal 1999, the Company executed a broad
realignment of territories, introduced a new sales compensation structure, and
conducted extensive sales training in the branch sales channel, which resulted
in an adverse impact on revenues. Domestic revenues were adversely impacted by
the Company's decision to eliminate the sale of non-Tab document management and
equipment related products. Equipment revenues were lower in the current quarter
due to an unusually large sale ($.5 million) in fiscal 1998 that was not
repeated in fiscal 1999. Offsetting these revenue decreases were increased sales
of technology products, professional services and mobile filing equipment.
International revenues were primarily impacted by foreign exchange fluctuations
quarter over quarter as sales in local currencies were essentially flat.

Cost of Revenue, as a percentage of revenues, was 62.6% for the first quarter of
fiscal 1999 as compared to the 59.6% reported in the first quarter of fiscal
1998. Cost of revenues for the first quarter was $23.9 million as compared to
the $23.5 million reported in the comparable quarter of fiscal 1998. The
increase in cost of revenues as a percentage of revenue was the result of both
lower revenues and increased manufacturing costs due to lower factory
efficiencies.

Operating Expenses were $14.1 million or 37.0% of revenues for the first quarter
of fiscal 1999 as compared to $14.2 million or 36.0% of revenues for the first
quarter of fiscal 1998. The increase in operating expenses as a percentage of
revenues was primarily due to increased payments under the Company's new sales
compensation program that overlapped with commission payments under the old
system in the first quarter of fiscal 1999. Additionally, the company has
increased sales costs to better support the increase in technology revenues.
Offsetting these increases were reductions in expenses for


                                       11
<PAGE>


operating sales branches and no recording of accruals for management incentive
plans where targets were not achieved in the current quarter.

Interest Expense, net, was $138,000 in the first quarter of fiscal 1999 as
compared to $168,000 in the first quarter of fiscal 1998. The decrease for the
three months ended August 31, 1998 was primarily due to a $3.3 million reduction
in the overall debt level as compared to August 31, 1997 as a result of debt
repayments during fiscal 1999 and fiscal 1998.

Earning Per Share for the three months ended August 31, 1998 were $.00 per share
for both basic and diluted shares compared to $.18 and $.17 per basic and
diluted shares, respectively, for the three months ended August 31, 1997.

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.

Focus on Services

The shift in the Company's strategy to focus on its professional services as a
way of providing value-added solutions to its customers has risk. The risk is
that the Company may not be able to generate the product sales along with the
service sales or that the level of product drag-along related to service sales
has been overestimated. In either situation, the loss of product sales could
have a material adverse effect on the Company's business, results of operations
and financial condition.

Distribution Channels

The Company is currently pursuing a strategy to refine and expand its
distribution channels. It is seeking to reorient its direct channel from local
distribution centers to sales execution centers and focus them on major
accounts. The Company is also seeking to expand its call center operations and
to direct reorder 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. Additionally, the
Company is seeking to remove exclusivity from its independent distributors. This
will


                                       12
<PAGE>

allow the Company to institute electronic commerce as part of its distribution
channel fabric. These changes may result in temporary or permanent loss of sales
people and independent distributors and the resultant loss of revenue they
currently generate. This result could have a material adverse effect on the
Company's business, results of operations and financial condition.

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
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.

Management System Upgrades and Year 2000 Compliance

The Company is aware of problems associated with computer systems as the year
2000 approaches. The Company's initiative to upgrade its systems to better
support its strategic direction and improve operational efficiencies will also
mitigate current year 2000 compliance issues with internal systems. The cost of
the systems upgrade project and


                                       13
<PAGE>


general improvements to the infrastructure related to this upgrade is estimated
to total approximately $1.6 to $2.0 million. During the first quarter of fiscal
1999 the Company incurred approximately $1.3 million related to this project.
Since the upgrade project costs are related to an overall systems initiative,
the year 2000 compliance costs cannot be reasonably determined. The costs and
time schedule for the systems upgrade are based on management's best estimates
for the implementation of this new management information system and
infrastructure upgrades. The Company has initiated programs to identify, and
mitigate to the best of its ability, any remaining internal and external risks
associated with the year 2000 problem. The risk of not meeting its timeline or
problems with suppliers or customers could materially adversely affect the
Company's business, results of operations, financial condition and prospects.

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 Company has shifted its strategy to focus more on its
professional services offerings, which are recognized as revenue when the
project is completed. Professional services projects are subject to each
individual customer's specific needs as it relates to the time frame for
execution of the project. Lengthening project order-to-execution time frames
could have a material adverse effect on the Company's business, financial
condition and results of operations.


                                       14
<PAGE>


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.

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 quarter of fiscal 1999 they accounted
for approximately 18% 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


                                       15
<PAGE>


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.

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.

Effect of Anti-Takeover Provisions

The Company has taken a number of actions that could have the effect of
discouraging a takeover attempt that might be beneficial to stockholders who
wish to receive a premium for their shares from a potential bidder. The Company
has adopted a Shareholder Rights Plan that would cause substantial dilution to a
person who attempts to acquire the Company on terms not approved by the
Company's Board of Directors. The Shareholder Rights Plan may therefore have the
effect of delaying or preventing any change in control and deterring any
prospective acquisition of the Company. Furthermore, the Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law ("Section 203"), which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person first becomes an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying or
preventing a change of control of the Company.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

                  Not applicable.


                                       16
<PAGE>


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.

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

         Not applicable.

ITEM 5.  OTHER INFORMATION

         Not applicable.

ITEM 6.  EXHIBITS

         (a)   27    Financial Data Schedule

         (b)   Reports on Form 8-K

               None


                                       17
<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:    October 15, 1998                /s/ David J. Davis
                                        ---------------------------------------
                                        David J. Davis, Senior Vice
                                        President, Operations and Chief
                                        Financial Officer

Date:    October 15, 1998               /s/ William R. Kinzie
                                        ---------------------------------------
                                        William R. Kinzie, Corporate
                                        Controller and Chief Accounting
                                        Officer


                                       18