----

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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION********WASHINGTON, D.C. 20549**

**FORM10-Q**

**(Mark one)**
| **ý** | **Quarterly Report Pursuant To Section 13 or 15(d) of the  Securities Exchange Act of 1934**  |
|------------|-----------------------------------------------------------------------------------------------|
|       |                                                                                          |
|       | **For  the quarter period ended August 31, 2001**                                             |
|       |                                                                                          |
|       | **OR**                                                                                        |
|       |                                                                                          |
| **o**      | **Transition Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|       |                                                                                          |
|       | **For  the transition period from ________ to ________**                                      |

**Commission 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.) |

**935 Lakeview Parkway, Suite 195Vernon Hills, IL  60061**(Address ofprincipal executive offices)

**(847)968-5400**(Registrant's telephone number - including area code)

**NOT APPLICABLE**Former name, former address and former fiscal year,if changed since last report.

Indicate bycheck mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý   No o

Indicate thenumber 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, 2001 – 5,196,638

----

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**TAB PRODUCTS CO.**

**INDEX**

**PART I.  FINANCIAL INFORMATION**

|                           |                                                                                                     |   |
|--------------------------------|----------------------------------------------------------------------------------------------------------|--------|
| **ITEM 1**                     | **Financial Statements (Unaudited):**                                                                    |   |
|                           |                                                                                                     |   |
|                           | Consolidated  Condensed Balance Sheets August 31, 2001 and May 31, 2001                                  |   |
|                           |                                                                                                     |   |
|                           | Consolidated  Condensed Statements of Earnings Three months ended August 31, 2001 and  August 31, 2000   |   |
|                           |                                                                                                     |   |
|                           | Consolidated  Condensed Statements of Cash Flows Three months ended August 31, 2001 and  August 31, 2000 |   |
|                           |                                                                                                     |   |
|                           | Notes  to Consolidated Condensed Financial Statements                                                    |   |
|                           |                                                                                                     |   |
| **ITEM  2**                    | Management's  Discussion and Analysis of Financial Condition  and Results of Operations                  |   |
|                           |                                                                                                     |   |
| **ITEM  3**                    | Quantitative  and Qualitative Disclosure About Market Risks                                              |   |
|                           |                                                                                                     |   |
| **PART II. OTHER INFORMATION** |
|                           |                                                                                                     |   |
| **ITEM  2**                    | Changes  in Securities and Use of Proceeds                                                               |   |
|                           |                                                                                                     |   |
| **ITEM 6**                     | Exhibits  and Reports on Form 8-K                                                                        |   |
|                           |                                                                                                     |   |
|                           | Signatures                                                                                               |   |

**TABPRODUCTS CO.****CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)****(000's omitted except share and per share data)**

|                                                                                        | **August 31,  2001**                                                                                                                      |    | **May 31,  2001** |    |
|---------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|---------|-------------------|---------|
|                                                                                        | ****                                                                                                                                      |    | ****              |    |
| **ASSETS**                                                                                  |                                                                                                                                      |    |              |    |
| **Current Assets:**                                                                         |                                                                                                                                      |    |              |    |
|                                                                                        | Cash and cash equivalents                                                                                                                 | $       | 9,835             |    | $ | 5,872 |   |
|                                                                                        | Short-term investments                                                                                                                    | 2,149   |              | 2,965   |   |
|                                                                                        | Accounts receivable, less  allowances of $1,013 and $889 for doubtful accounts                                                            | 21,137  |              | 23,507  |   |
|                                                                                        | Inventories                                                                                                                               | 5,189   |              | 5,104   |   |
|                                                                                        | Income tax receivable                                                                                                                     | 500     |              | 4,764   |   |
|                                                                                        | Deferred income taxes                                                                                                                     | 1,871   |              | 3,002   |   |
|                                                                                        | Prepaid expenses                                                                                                                          | 1,924   |              | 1,548   |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
|                                                                                        | **Total Current Assets**                                                                                                                  | 42,605  |              | 46,762  |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| Property, plant and equipment, net  of accumulated depreciation of $27,322 and $26,916 | 6,992                                                                                                                                     |    | 7,516             |    |
| Goodwill, net                                                                               | 2,585                                                                                                                                     |    | 2,643             |    |
| Deferred pension asset                                                                      | 3,344                                                                                                                                     |    | 3,134             |    |
| Other assets                                                                                | 3,390                                                                                                                                     |    | 2,102             |    |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| **Total Assets**                                                                            | $                                                                                                                                         | 58,916  |              | $       | 62,157 |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                    |                                                                                                                                      |    |              |    |
| **Current Liabilities:**                                                                    |                                                                                                                                      |    |              |    |
|                                                                                        | Accounts  payable                                                                                                                         | $       | 9,345             |    | $ | 10,816 |   |
|                                                                                        | Compensation  payable                                                                                                                     | 2,411   |              | 2,290   |   |
|                                                                                        | Other accrued liabilities                                                                                                                 | 6,048   |              | 7,277   |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
|                                                                                        | **Total Current  Liabilities**                                                                                                            | 17,804  |              | 20,383  |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| Deferred income taxes and other  non-current liabilities                                    | 1,271                                                                                                                                     |    | 1,271             |    |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| Commitments and contingencies                                                               | -                                                                                                                                         |    | -                 |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| **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 2001 - 7,762,607  shares and May 2001 - 7,742,137 shares | 78      |              | 77      |   |
|                                                                                        | Additional paid-in capital                                                                                                                | 15,491  |              | 15,236  |   |
|                                                                                        | Stock subscription – notes  receivable                                                                                               | (198    | )                 | (397    | ) |
|                                                                                        | Retained earnings                                                                                                                         | 57,175  |              | 57,974  |   |
|                                                                                        | **Treasury stock:** August 2001  - 2,565,969 shares and May 2001 - 2,535,969 shares                                                       | (31,971 | )                 | (31,597 | ) |
|                                                                                        | Accumulated other comprehensive  loss                                                                                                     | (734    | )                 | (790    | ) |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
|                                                                                        | **Total  Stockholders' Equity**                                                                                                           | 39,841  |              | 40,503  |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                        |                                                                                                                                      |    |              |    |
| **Total Liabilities and Stockholders’ Equity**                                         | $                                                                                                                                         | 58,916  |              | $       | 62,157 |   |
|                                                                                        |                                                                                                                                           |    |                   |    |
|                                                                                             |                                                                                                                                           |         |                   |         |  |  |  |  |

**See Notes to UnauditedConsolidated Condensed Financial Statements.**

**TABPRODUCTS CO.CONSOLIDATED CONDENSEDSTATEMENTS OF EARNINGS (UNAUDITED)(000's omitted except share and per share data)**

|                                                                                     | **Three Months  Ended  August 31**   |   |
|------------------------------------------------------------------------------------------|--------------------------------------|--------|
|                                                                                     |                                      |   |
|                                                                                     | **2001**                             |   | **2000** |   |
|                                                                                     | ****                                 |   | **** |   |
|                                                                                     |                                 |   |   |   |
| **Revenues**                                                                             | $                                    | 28,505 |   | $ | 30,230 |   |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| **Costs and Expenses:**                                                                  |                                 |   |   |   |
|                                                                                     | Cost of revenues                     | 17,350 |   | 19,466 |   |
|                                                                                     | Selling, general and  administrative | 12,367 |   | 15,053 |   |
|                                                                                     | Research and development             | 139    |   | 197 |   |
|                                                                                     |                                      |   |  |   |
|                                                                                     | **Total Costs and  Expenses**        | 29,856 |   | 34,716 |   |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
|                                                                                     | **Operating Loss**                   | (1,351 | ) | (4,486 | ) |
|                                                                                     |                                 |   |   |   |
| Interest, net, and other                                                                 | 121                                  |   | 113 |   |
|                                                                                     |                                      |   |  |   |
|                                                                                     | Loss before income taxes             | (1,230 | ) | (4,373 | ) |
|                                                                                     |                                 |   |   |   |
|                                                                                     |                                 |   |   |   |
| Income tax benefit                                                                       | (431                                 | )      | (1,582 | ) |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| Net Loss before cumulative effect  of a change in accounting principle                   | (799                                 | )      | (2,791 | ) |
|                                                                                     |                                 |   |   |   |
| Cumulative effect of a change in  accounting principle                                   | -                                    |   | (330 | ) |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| **Net  Loss**                                                                            | $                                    | (799   | ) | $ | (3,121 | ) |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| Basic net loss per share before  cumulative effect of a change in accounting principle   | $                                    | (0.15  | ) | $ | (0.54 | ) |
| Cumulative effect on prior years  of a change in accounting principle                    | -                                    |   | (0.06 | ) |
|                                                                                     |                                      |   |  |   |
| **Basic  net loss per share**                                                            | $                                    | (0.15  | ) | $ | (0.60 | ) |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| Shares used in computing basic net  loss per share                                       | 5,196,470                            |   | 5,206,313 |   |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| Diluted net loss per share before  cumulative effect of a change in accounting principle | $                                    | (0.15  | ) | $ | (0.54 | ) |
| Cumulative effect on prior years  of a change in accounting principle                    | -                                    |   | (0.06 | ) |
|                                                                                     |                                      |   |  |   |
| **Diluted  net loss per share**                                                          | $                                    | (0.15  | ) | $ | (0.60 | ) |
|                                                                                     |                                      |   |  |   |
|                                                                                     |                                 |   |   |   |
| Shares used in computing diluted  net loss per share                                     | 5,196,470                            |   | 5,206,313 |   |
|                                                                                     |                                      |   |  |   |
|                                                                                          |                                      |        |  |  |  |  |  |  |

**See Notes to UnauditedConsolidated Condensed Financial Statements.**

**TABPRODUCTS CO.CONSOLIDATED CONDENSED STATEMENTSOF CASH FLOWS (UNAUDITED)(000's omitted)**

|                                                      | **Three Months  Ended****August  31,**                                                      |   |
|-----------------------------------------------------------|---------------------------------------------------------------------------------------------|--------|
|                                                      | ****                                                                                        |   |
|                                                      | **2001**                                                                                    |   | **2000** |   |
|                                                      | ****                                                                                        |   | **** |   |
| **OPERATING ACTIVITIES:**                                 |                                                                                        |   |   |   |
|                                                      |                                                                                        |   |   |   |
|                                                      | Net loss                                                                                    | $      | (799 | ) | $ | (3,121 | ) |
|                                                      | Cumulative effect of a change in  accounting principle                                      | -      |   | 330 |   |
|                                                      | Adjustments to Reconcile Net Loss  to Net Cash Provided (Required) by Operating Activities: |   |   |   |   |
|                                                      | Depreciation and amortization                                                               | 753    |   | 1,086 |   |
|                                                      | Deferred income taxes                                                                       | (363   | ) | 354 |   |
|                                                      | Issuance of common stock to 401(k)  plan                                                    | 81     |   | 62 |   |
|                                                      | Changes in operating assets and  liabilities:                                               |   |   |   |   |
|                                                      | Accounts receivable, net                                                                    | 2,370  |   | 4,874 |   |
|                                                      | Inventories                                                                                 | (85    | ) | 214 |   |
|                                                      | Income tax receivable                                                                       | 4,264  |   | (1,392 | ) |
|                                                      | Deferred income taxes and prepaid  expenses                                                 | (376   | ) | (2,137 | ) |
|                                                      | Deferred pension asset                                                                      | (210   | ) | - |   |
|                                                      | Other assets                                                                                | 206    |   | (94 | ) |
|                                                      | Accounts payable                                                                            | (1,471 | ) | (1,218 | ) |
|                                                      | Compensation payable                                                                        | 121    |   | (1,100 | ) |
|                                                      | Other accrued liabilities                                                                   | (1,182 | ) | (224 | ) |
|                                                      |                                                                                             |   |  |   |
| **Net Cash Provided (Required) by Operating  Activities** | 3,309                                                                                       |   | (2,366 | ) |
|                                                      |                                                                                             |   |  |   |
|                                                      |                                                                                        |   |   |   |
| **INVESTING ACTIVITIES:**                                 |                                                                                        |   |   |   |
|                                                      | Purchase of property, plant and  equipment, net                                             | (218   | ) | (134 | ) |
|                                                      | Purchases of short-term  investments                                                        | -      |   | (1,487 | ) |
|                                                      | Sales of short-term investments                                                             | 816    |   | 2,553 |   |
|                                                      |                                                                                             |   |  |   |
| **Net Cash Provided By Investing Activities**             | 598                                                                                         |   | 932 |   |
|                                                      |                                                                                             |   |  |   |
|                                                      |                                                                                        |   |   |   |
| **FINANCING ACTIVITIES:**                                 |                                                                                        |   |   |   |
|                                                      | Dividends paid                                                                              | -      |   | (256 | ) |
|                                                      |                                                                                             |   |  |   |
| **Net  Cash Required by Financing Activities**            | -                                                                                           |   | (256 | ) |
|                                                      |                                                                                             |   |  |   |
|                                                      |                                                                                        |   |   |   |
| Effect of exchange rate changes on  cash                  | 56                                                                                          |   | 178 |   |
|                                                      |                                                                                             |   |  |   |
|                                                      |                                                                                        |   |   |   |
| Increase (decrease) in cash and  cash equivalents         | 3,963                                                                                       |   | (1,512 | ) |
|                                                      |                                                                                        |   |   |   |
| Cash and cash equivalents at  beginning of period         | 5,872                                                                                       |   | 5,724 |   |
|                                                      |                                                                                             |   |  |   |
|                                                      |                                                                                        |   |   |   |
| **Cash and Cash Equivalents at End of Period**            | $                                                                                           | 9,835  |   | $ | 4,212 |   |
|                                                      |                                                                                             |   |  |   |
|                                                      |                                                                                        |   |   |   |
| Cash paid for:                                            |                                                                                        |   |   |   |
|                                                      | Interest                                                                                    | $      | 1 |   | $ | 2 |   |
|                                                      | Income taxes, net of refunds  received                                                      | $      | (4,107 | ) | $ | 114 |   |
|                                                           |                                                                                             |        |  |  |  |  |  |  |

**See Notes to UnauditedConsolidated Condensed Financial Statements.**

**TAB PRODUCTS CO.**

**NOTESTO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)**

**1.          BASIS OF PRESENTATION**

             The Company's unauditedconsolidated condensed financial statements have been prepared in accordancewith generally accepted accounting principles and, in the opinion ofmanagement, reflect all adjustments (consisting only of normal recurringadjustments) considered necessary to fairly state the Company's financialposition, results of operations, and cash flows for the periods presented.  These consolidated financial statementsshould be read in conjunction with the Company's audited consolidated financialstatements included in the Company's Annual Report Form 10-K for the fiscalyear ended May 31, 2001.  The results ofoperations for the three-month period ended August 31, 2001 are not necessarilyindicative of the results to be expected for any subsequent quarter or for theentire fiscal year ending May 31, 2002. The May 31, 2001 balance sheet was derived from audited consolidatedfinancial statements, but does not include all disclosures required bygenerally accepted accounting principles.

**2.          INVENTORY**

             Inventories consisted of thefollowing (in thousands):

|            | **August 31,  2001** |   | **May 31,  2001** |   |
|-----------------|----------------------|--------|-------------------|--------|
|            | ****                 |   | ****              |   |
| Finished goods  | $                    | 1,376  |              | $      | 1,443 |   |
| Work in process | 237                  |   | 272               |   |
| Raw materials   | 3,576                |   | 3,389             |   |
|            |                      |   |                   |   |
|            | $                    | 5,189  |              | $      | 5,104 |   |
|            |                      |   |                   |   |

**3.          DIVIDENDS**

             Dividends declared for thethree-month period ended August 31, 2000 were as follows:

| **Record Date** |             | **Shares Outstanding** |      | **Dividend Per Share** |   |
|-----------------|------------------|------------------------|-----------|------------------------|--------|
| ****            |             | ****                   |      | ****                   |   |
|            |             |                   |      |                   |   |
| Fiscal  2001:   |             |                   |      |                   |   |
|            | August  25, 2000 |                   | 5,120,147 |                   | $.05   |   |
|                 |                  |                        |           |                        |        |  |

             On March 27, 2001, the Company’sBoard of Directors discontinued the cash dividend on the common stock of theCompany for quarters ending February 28, 2001 and later.
**4.**          **SegmentReporting**

             Operating segments are defined ascomponents of an enterprise about which separate financial information isavailable that is evaluated regularly by the chief operating decision maker, orchief decision making group, in deciding how to allocate resources and inassessing performance.  The ChiefExecutive Officer is the Company's chief decision maker. The Company operatesand is managed internally by four geographic operating segments. The operatingsegments include United States, Canada, the Netherlands and Australia. Outsidethe United States, each operating segment has a general manager that reports tothe Vice President, International, who reports to the Chief Executive Officer.  Within the United States, the individualsresponsible for operations, marketing and sales report directly to the ChiefExecutive Officer.

             Information about segments (inthousands):
 **Three Months  Ended  August 31,**    **2001**** ****2000**** ** **** **** Revenues:     United  States$22,358 $23,277  Canada4,383 4,961  Netherlands691 972  Australia1,073 1,020     Consolidated  Total$28,505 $30,230      ** ** ** **(Loss)  income before income taxes:     United  States$(1,558)$(4,670) Canada145 188  Netherlands156 92  Australia27 17     Consolidated  Total$(1,230)$(4,373)     ** ** ** **Depreciation  and amortization:     United  States$645 $987  Canada84 72  Netherlands13 15  Australia11 12     Consolidated  Total$753 $1,086               **August 31, 2001**** ****May 31, 2001**** ** **** **** Property,  plant and equipment, net of accumulated depreciation:     United  States$6,297 $6,814  Canada331 359  Netherlands138 123  Australia226 220     Consolidated  Total$6,992 $7,516    Total  assets:     United  States$48,658 $51,273  Canada6,992 7,570  Netherlands1,701 1,680  Australia1,565 1,634     Consolidated  Total$58,916 $62,157    
Geographicrevenues are based on the country from which customers are invoiced.  Income before income taxes is net sales lessoperating expenses, interest or other expenses, but prior to income taxes.

**5.          COMPREHENSIVE LOSS**

             The components of comprehensiveloss, net of tax, are as follows (in thousands):
 **Three Months  Ended  August 31,**  ****  **2001** **2000**  **** **** Net loss$(799)$(3,121)Foreign currency translation56 (87)        Comprehensive loss$(743)$(3,208)   
Accumulatedother comprehensive loss, net of tax, presented on the accompanying unauditedconsolidated condensed balance sheets consists of the following (in thousands):
 **August 31,  2001** **May 31,  2001**  **** **** Foreign currency translation$(734)$(790)   
**6.          SUBSEQUENT EVENT**

             On September 17, 2001, the Companyannounced that its Board of Directors authorized management to makediscretionary repurchases of up to 10% of the Company’s common stock during thenext twelve months at market prices.

**7.          RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**

             In June 2001, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 142 (“SFAS No. 142”), Goodwill and Other Intangible Assets.  SFAS No. 142 addresses the initialrecognition and measurement of intangible assets acquired outside of a businesscombination and the accounting for goodwill and other intangible assetssubsequent to their acquisition.  SFASNo. 142 provides that intangible assets with finite useful lives be amortizedand that goodwill and intangible assets with indefinite lives will not beamortized, but will rather be tested at least annually for impairment.  The Company will adopt SFAS No. 142 on June1, 2002.  Upon adoption of SFAS No. 142,the Company will stop the amortization of goodwill that resulted from priorbusiness combinations.  The Company willevaluate goodwill under the SFAS No. 142 transitional impairment test and hasnot yet determined whether or not there is an impairment loss.  Any transitional impairment loss will berecognized as a change in accounting principle.

**8.          CHANGES IN ACCOUNTING PRINCIPLE**

             In June 1998, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 133 (“SFAS No. 133”), Accounting for Derivative Instruments and HedgingActivities*. *This statement requires companiesto record derivatives on the balance sheet as assets or liabilities, measuredat fair value.  Gains or lossesresulting from changes in the values of those derivatives would be accountedfor depending on the use of the derivative and whether it qualifies for hedgeaccounting.  The Company adopted SFASNo. 133 on June 1, 2001.  The adoptionof SFAS No. 133 did not have a material impact on the Company’s financialposition, results of operations or cash flows.

             In December 1999, the Securitiesand Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (“SABNo.101”), Revenue Recognition in Financial Statements, which provides guidancerelated to revenue recognition based on interpretations and practices followedby the SEC and was effective the first fiscal quarter of fiscal years beginningafter December 15, 1999.  SAB No. 101requires companies to report any changes in revenue recognition as a cumulativechange in accounting principal at the time of implementation in accordance withAccounting Principles Board Opinion 20, Accounting Changes.  Subsequently, SAB No. 101A and 101B wereissued to delay the implementation of SAB No. 101.
             After evaluation of the Company’srevenue recognition policies compared to the guidance in SAB No. 101, theCompany changed its accounting policy for revenue from mobile file storageequipment.   Adoption of the change inaccounting, in the third quarter of fiscal year 2001, resulted in revenue beingrecorded only after installation of the equipment on customer premises ratherthan upon shipment, thus postponing revenue recognition by an average of twomonths.  The change in accountingnecessitated the restatement of the first and second quarter 10Q filings toproperly reflect the beginning of the year recording of the cumulative effect on prior years (to May 31, 2000)of a change in accounting principle. The cumulative effect of the change in accounting principle was a chargeof $330,000 in the first quarter of fiscal year 2001.

 

**ITEM 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF                           OPERATIONS**

             This report, including withoutlimitation the following section regarding Management’s Discussion and Analysisof Financial Condition and Results of Operations, contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended,regarding the Company and its business, financial condition, results ofoperations and prospects.   Words suchas “expects,” “may,” “will,” “should,” “forecasts,” “potential,” “continue,”“anticipates,” “intends,” “plans,” “projections,” “believes,” “seeks,”“foreseeable,” “estimates,” and similar expressions or variations of such wordsare intended to identify forward-looking statements.  Additionally, statements concerning future matters such as thedevelopment of new products, enhancements or technologies, possible changes inlegislation and other statements regarding matters that are not historical areforward-looking statements.  Thesestatements are only predictions.

             Although forward-looking statementsin 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 theCompany.  Consequently, forward-lookingstatements are inherently subject to risks and uncertainties and actual resultsand outcomes may differ materially from the results and outcomes discussed inthe forward-looking statements.  Factorsthat could cause or contribute to such differences in results and outcomesinclude without limitation those discussed in “Business Environment and RiskFactors” as well as those discussed elsewhere in this report.  Readers are urged not to place unduereliance on these forward-looking statements, which speak only as of the dateof this report.  Readers are urged tocarefully review and consider the various disclosures made by the Company inthis report, which attempt to advise interested parties of the risks andfactors that may affect the Company’s business, financial condition, results ofoperations and prospects.  The Companyis not under any obligation (and expressly disclaims any such obligation) toupdate or alter its forward-looking statements, whether as a result of newinformation, future events or otherwise.

             The following discussion of theCompany’s financial condition and results of operations should be read inconjunction with the Unaudited Consolidated Condensed Financial Statements ofthe Company.

**Capital Resources and Liquidity**

             At August 31, 2001, the Company hadcash and short-term investments of $12.0 million, an increase of $3.2 millionfrom the $8.8 million at May 31, 2001. The Company’s working capital position at August 31, 2001 was $24.8million as compared with $26.4 million at May 31, 2001.  The current ratio of 2.4 at August 31, 2001was higher than the current ratio of 2.3 reported for May 31, 2001.  The increase in cash is primarily the resultof a reduction in accounts receivable of $2.4 million from $23.5 million on May31, 2001 to $21.1 million on August 31, 2001 and a $4.5 million tax refund receivedin July 2001.  Such increases to cashwere partially offset by the operating loss during the period and the paymentof certain liabilities accrued in the prior year.  The decrease in working capital is primarily the result of theabove mentioned decrease in accounts receivable and the tax refund receivable.

             Current liabilities decreased $2.6million from $20.4 million at May 31, 2001 to $17.8 million at August 31,2001.  The decrease is primarily relatedto payment of certain liabilities accrued in the prior year.
             Investments in property, plant andequipment, which were primarily focused on company-wide management informationsystems and associated infrastructure investments, were $0.2 million for thethree months ended August 31, 2001.  Capital expenditures to support operations for fiscal 2002 are expectedto total approximately $0.8 million.

             The Company paid no cash dividendsin the three-month period ended August 31, 2001 and $0.3 million in cashdividends in the three-month period ended August 31, 2000.  On March 27, 2001, the Company’s Board ofDirectors discontinued the cash dividend for quarters ending February 28, 2001and later.

             The Company currently has nooutstanding debt.  The Company currentlyhas a $5.0 million secured line of credit with a bank.  The line of credit contains covenantsrelated to cash flow and tangible net worth that the Company mustmaintain.  The Company was in compliancewith all of its covenants as of August 31, 2001.  The Company does not anticipate the need to utilize the line ofcredit prior to its expiration on October 31, 2001, and will evaluate whetheror not to renew it in the second quarter of fiscal year 2002.  The Company believes that its current cash,future cash flows and borrowing capacity will provide sufficient workingcapital for the next twelve months.

**Results of Operations**

**             Revenues** for the first quarter of fiscal 2002 were $28.5million, down $1.7 million or 5.7% from the $30.2 million revenue reported inthe first quarter of fiscal 2001.  The decrease in revenues was primarilyattributable to a decline in U.S. service revenue and lower sales frominternational operations.

**             Cost of Revenue**, as a percentage of revenues, was 60.9% for thefirst quarter of fiscal 2002 as compared to the 64.4% cost of revenue reportedin the first quarter of fiscal 2001. The decrease in cost of revenue percentage quarter to quarter wasprimarily due to an improved mix of products combined with lower operatingcosts and slightly higher prices in the first quarter of fiscal 2002.

**             Operating Expenses** were $12.5 million or 43.9% of total revenuesfor the first quarter of fiscal 2002 as compared to $15.3 million or 50.4% oftotal revenues for the first quarter of fiscal 2001.  First quarter of fiscal 2002 operating expenses included $0.4million of costs related to the proxy contest initiated by ThaddeusJaroszewicz.  First quarter of fiscal2001 operating expenses included a one-time charge of $1.4 million due to theretirement of the Company’s former Chief Executive Officer and higher costsassociated with a greater number of sales representatives, as compared to firstquarter of fiscal 2002.  In addition,first quarter of fiscal 2001 operating expenses included $0.2 million ofgoodwill amortization for the Company’s imaging services subsidiary.  Such goodwill was written-off in itsentirety as of May 31, 2001, and accordingly there is no comparableamortization in the first quarter of fiscal 2002.

**             Interest, net**, **and other income** was $121,000 in the firstquarter of fiscal 2002 as compared to $113,000 in the first quarter of fiscal2001.

**             Income Tax Benefit.**  Net losses for the three months ended August31, 2001 have been reduced by the amount of tax refunds available from thecarryforward of net operating losses to future periods.  The effective rate is 35.0% for the threemonth period ended August 31, 2001 and the effective rate is 36.2% for thethree month period ended August 31, 2000.

**             Net Loss Per Share** for the three monthsended August 31, 2001 was $0.15 for both basic and diluted shares compared tonet loss per share of $0.60 for both basic and diluted shares for the threemonths ended August 31, 2000.

**             Cumulative Effect of a Change in Accounting Principle.** Adoption of achange in accounting for the recognition of revenue related to mobile filingsystems necessitated a cumulative effect adjustment of $0.3 million as of thebeginning of the first quarter of fiscal year 2001.

**Subsequent Event**

             On September 17, 2001, the Companyannounced that its Board of Directors authorized management to makediscretionary repurchases of up to 10% of the Company’s common stock during thenext twelve months at market prices.

**Recently Issued AccountingStandards**

             In June 2001, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardNo. 142 (“SFAS No. 142”), Goodwill and Other Intangible Assets.  SFAS 142 addresses the initial recognitionand measurement of intangible assets acquired outside of a business combinationand the accounting for goodwill and other intangible assets subsequent to theiracquisition.  SFAS No. 142 provides thatintangible assets with finite useful lives be amortized and that goodwill andintangible assets with indefinite lives will not be amortized, but will ratherbe tested at least annually for impairment. The Company will adopt SFAS No. 142 on June 1, 2002.  Upon adoption of SFAS No. 142, the Companywill stop the amortization of goodwill that resulted from prior businesscombinations.  The Company will evaluategoodwill under the SFAS No. 142 transitional impairment test and has not yetdetermined whether or not there is an impairment loss.  Any transitional impairment loss will berecognized as a change in accounting principle. 

**BusinessEnvironment And Risk Factors**

             The Company's future operatingresults may be affected by various trends and factors, which we mustsuccessfully manage in order to achieve favorable operating results. Inaddition, there are trends and factors beyond our control, which affect ouroperations.  Such trends and factorsinclude, but are not limited to, possible adverse changes in general economicconditions or conditions in the specific markets for our products, governmentalregulation, fluctuations in foreign exchange rates, force majeure, and otherfactors, including, but not limited to, those listed below.

*             An accelerated move to digital technology by ourcustomers could weaken demand for our products and services*.  Although the use of paper by business hascontinued to increase, the use of digital records by large document intensiveindustries may accelerate.  This couldweaken the demand for our paper-based supplies and storage products.  If we fail to respond with new digitalproducts and services to such a potential market change, our revenues, resultsof operations, financial condition and prospects could be adversely affected.

*             The impact of the recent terrorist attacks in the UnitedStates may have both short-term and long-term adverse effects on our revenues,results of operations, financial condition and prospects*.   While it is likely that the terroristattacks of September 11, 2001 will have an immediate impact on our business asa result of business disruption generally, including transportation disruption,deferral of customer purchasing decisions and supply chain disruption, the long-termeffects are not known at this time.

*             We may not be able to achieve higher market penetrationfor sales of large document management solution projects*.  Although from fiscal 2001 onward we havefocused our selling efforts on obtaining a balanced mix of orders of varyingsizes and types, large projects may be important to achieving revenuegrowth.  While there is no known largecompetitor with these capabilities today, if we fail to achieve significantmarket penetration for such projects, revenue growth may be limited and ourresults of operations may be adversely impacted.

*             If we cannot attract and retain key qualified personnel,our business and results of operations may be adversely impacted*.  Our future performance depends insignificant part upon attracting and retaining key management, sales,manufacturing, marketing and technical support personnel.  The inability to attract, assimilate orretain highly qualified personnel in the future on a timely basis could have amaterial adverse effect on our business, results of operations and financialcondition.

*             We may experience adverse effects as a result of theongoing proxy contest being pursued by Thaddeus Jaroszewicz*.  A pending attempt by Thaddeus Jaroszewicz toelect six directors to the Company’s Board of Directors at the 2001 AnnualMeeting creates uncertainty over the future management and direction of theCompany, including the extent to which the Company will maintain its commitmentto management’s plan to improve financial and operating performance.  The pending contest may distract managementfrom attention to the execution of the plan and the uncertainty resulting fromthe contest could have an adverse impact on employee retention anddistribution, supplier and customer relationships.

*             Our operating results may fluctuate from period toperiod*.  Factorsaffecting our operating results and gross margins include the volume of productsales, competitive pricing pressures, the ability to match supply with demand,changes in product and customer mix, market acceptance of new or enhancedversions of our products and services, changes in the channels through whichour products and services are distributed, changes in our product mix, timingof new product announcements and introductions by us and our competitors,fluctuations in product costs, variations in manufacturing cycle times,fluctuations in manufacturing utilization, our ability to achieve manufacturingvolumes with our new and existing products, increased research and developmentexpenses, exchange rate fluctuations, a change in our effective tax rate andchanges in general economic conditions. All of these factors are difficult to forecast and these or otherfactors can materially affect our quarterly or annual operating results.
*             Our liquidity could be adversely impacted by unexpectedevents. *Although we believe that we have sufficient cashon hand and cash from operations to satisfy our working capital needs for thenext 12 months, any significant unexpected cash requirements could adverselyimpact our liquidity.  In thosecircumstances, we would be required to seek third party financing and we cannotbe certain that financing will be available on acceptable terms or at all.  Factors affecting our cash flows include netincome or losses, the timely collection of accounts receivable from customers,the willingness of suppliers to extend normal credit terms, the purchase andsale of assets, the willingness of financial institutions to lend to us, andthe payment of dividends.  Although ourprojections of these factors indicate that our operational cash flows, togetherwith our existing cash and cash equivalent balances and our borrowing capacitywill adequately finance anticipated operations and capital expenditures for theforeseeable future, investors are cautioned that such projections inherentlyinvolve risks and uncertainties.

*             Our inability to compete effectively could have amaterial adverse impact on our results of operations. * Competition may increase in the future fromexisting competitors and/or from other companies offering products and servicesthat may be less costly or provide additional features.  Unless we respond effectively, suchcompetition could result in lost sales and lower operating results.

*             Our recent restructuring of our direct sales force andour new sales incentive program may not achieve the expected results. *We have recently restructured our direct salesforce and introduced a new sales incentive plan for the direct sales force forfiscal 2002.  Although we believe thatthese efforts will provide better, more focused sales management and improvedincentives for our sales representatives, there can be no assurance that thesechanges will result in the intended improvement of the effectiveness of ourdirect sales force.

*             Our inability to estimate accurately the requirementsfor professional services projects could have a negative impact on our resultsof operations.*  Ourprofessional services business requires submitting bids to customers based onestimates of the time and expense needed to meet various project specificationsand deadlines.  Failure to estimateaccurately and execute within proper estimates has had a negative impact on ourgross margins in the past.  Managementhas developed improved cost controls and management oversight to produce betterestimates and project execution.  Therecan be no assurance that these improvements will be successful.

*             Our inability to obtain sufficient quantities ofcritical components could adversely impact our business and results ofoperations.*   Wepurchase several critical components from single or sole source vendors forwhich alternative sources are not currently developed.  Development of alternative suppliers wouldrequire a significant amount of time to qualify in the case of certain of ourcomponents.  We do not maintainlong-term supply agreements with any of these vendors.  The inability to develop alternative sourcesfor these single or sole source components or to obtain sufficient quantitiesof these components could result in delays or reductions in product shipments,which could adversely affect our business, financial condition and results ofoperations.

*             Our inability to achieve planned manufacturing volumescould adversely impact our results of operations*.  There can be no assurance that ourmanufacturing facilities will achieve or maintain acceptable manufacturingvolumes in the future.  The inability toachieve planned volumes from our manufacturing facilities could have an adverseeffect on our business, financial condition and results of operations.  Any problems experienced by us in ourcurrent or future transitions to new processes and products or theconsolidation of manufacturing operations could have a material adverse effecton our business, financial condition and results of operations.

*             Sales to the U.S. Government may result in fluctuationsdue to their budget constraints and new initiatives*.   Government revenues primarily expose us torisks from reductions in budget allocations to support regulation andadministrative offices.  The governmentmay periodically undertake initiatives that create opportunities to help themstreamline workflow processes, reduce paperwork and increase customer service,which may provide short-term opportunities for us.  However, the long-term effect of a government initiative tostreamline processes could eventually have a negative impact on our business,financial condition and results of operations.

*             Unfavorable intellectual property developments couldadversely impact our business and results of operations.*   We rely on a combination of patents,trademarks, copyright and trade secret laws, confidentiality procedures andlicensing arrangements to protect our intellectual property rights.  We have been notified in the past and may benotified in the future of claims that they may be infringing upon patents orother intellectual property rights owned by third parties.  There can be no assurance that in the futureany patents held by us will not be invalidated, that patents will be issued forany of our pending applications or that any claims allowed from existing orpending patents will be of sufficient scope or strength or be issued in theprimary countries where our products can be sold to provide meaningfulprotection or any commercial advantage to us. Additionally, our competitors maybe able to design around our patents.
*             A significant decrease in international sales couldadversely impact our business and results of operations*.   International sales accounted for approximately25% and 22%, respectively of our total revenues in fiscal 2001 and 2000.  Fluctuations in currencies negativelyimpacted us in fiscal 2001 and could adversely affect our business, financialcondition and results of operations in the future.  In addition, gains and losses on the conversion to United Statesdollars of accounts receivable, accounts payable and other monetary assets andliabilities arising from international operations may contribute tofluctuations in our results of operations. Because sales of our products havebeen denominated to date primarily in United States dollars, increases in thevalue of the United States dollar could increase the price of our products sothat they become relatively more expensive to customers in the local currencyof a particular country, leading to a reduction in sales and profitability inthat country.  We are subject to therisks of conducting business internationally, including foreign governmentregulation and general geopolitical risks such as political and economicinstability, potential hostilities and changes in diplomatic and traderelationships.  Manufacturing and salesof our products may also be materially adversely affected by factors such asunexpected changes in, or imposition of, regulatory requirements, tariffs,import and export restrictions and other barriers and restrictions, longerpayment cycles, greater difficulty in accounts receivable collection,potentially adverse tax consequences, the burdens of complying with a varietyof foreign laws and other factors beyond our control.  In addition, the laws of certain foreign countries in which ourproducts are or may be developed, manufactured or sold, may not protect ourintellectual property rights to the same extent as do the laws of the United Statesand thus make piracy of our products a more likely possibility.  There can be no assurance that these factorswill not have a material adverse effect on our business, financial condition orresults of operations.

*             Our inability to manage expenses in alignment withrevenues could adversely impact our results of operations and financialcondition.*   Weincurred significant one-time costs in fiscal 2001 to restructure our expenselevels in line with expected revenues. If this restructuring was not sufficient and if we fail to takeadditional actions that may become necessary to align future expenses withfuture revenue levels, our business, results of operations and financialcondition could be adversely impacted.

 

**ITEM3.            QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISKS**

             The Company is exposed to marketrisk related to fluctuations in interest rates and in foreign currency exchangerates.

             The Company’s exposure to marketrisk due to fluctuations in interest rates relates primarily to its short-terminvestment portfolio, which consists of corporate debt securities, which areclassified as available-for-sale and were reported at an aggregate fair valueof $2.1 million as of August 31, 2001. These available-for-sale securities are subject to interest rate risk inas much as their fair value will fall, if market interest rates increase.  If market interest rates were to increaseimmediately and uniformly by 10% from the levels prevailing at August 31, 2001,the fair value of the portfolio would not decline by a material amount.  The Company does not use derivativefinancial instruments to mitigate the risks inherent in these securities.  However, the Company does attempt to reducesuch risks by typically limiting the maturity date of such securities to nomore than nine months, placing its investments with high credit quality issuersand limiting the amount of credit exposure with any one issuer.  In addition, the Company believes that itcurrently has the ability to hold these investments until maturity, andtherefore, believes that reductions in the value of such securitiesattributable to short-term fluctuations in interest rates would not materiallyaffect the financial position, results of operations or cash flows of theCompany.

             The Company’s exposure to marketrisk due to fluctuations in foreign currency exchange rates relates primarilyto the intercompany balance with its European subsidiary.  Although the Company transacts business withvarious foreign countries, settlement amounts are usually based on localcurrency.  Transaction gains or losseshave not been significant in the past and there is no hedging activity onNetherlands Guilders or other currencies. Based on the intercompany balance of $28,000 at August 31, 2001, ahypothetical 10% adverse change in Netherlands Guilders against U.S. dollarswould not result in a material foreign exchange loss.  Consequently, the Company does not expect that reductions in thevalue of such intercompany balances or of other accounts denominated in foreigncurrencies resulting from even a sudden or significant fluctuation in foreignexchange rates, would have a direct material impact on the Company’s financialposition, results of operations or cash flows.
             Notwithstanding the foregoinganalysis of the direct effects of interest rate and foreign currency exchangerate fluctuations on the value of certain of the Company’s investments andaccounts, the indirect effects of such fluctuations could have a materialadverse effect on the Company’s business, financial condition and results ofoperations.  For example, internationaldemand for the Company’s products could be affected by foreign currencyexchange rates.  In addition, interestrate fluctuations may affect the buying patterns of the Company’s customers.  Furthermore, interest rate and currencyexchange rate fluctuations have broad influence on the general condition of theU.S., foreign and global economies, which could materially and adversely affectthe Company.

**PARTII: OTHER INFORMATION**

**ITEM2.            CHANGES IN SECURITIES ANDUSE OF PROCEEDS.**

Effective September 10, 2001, the Companyamended its bylaws as follows: (a) effective as of February 1, 2002, holders ofat least 25% of all shares entitled to cast votes at a special meeting will bepermitted to call a special meeting of stockholders, which must be held within55 days of a valid demand; (b) effective immediately, the Board of Directors isprohibited from increasing its size above seven directors so long as either Mr.Warren Lichtenstein and Mr. David Wright are directors; (c) effectiveimmediately, the Board of Directors is prohibited from forming an executivecommittee to act on behalf of the Board of Directors without a majority vote ofthe Board of Directors that includes whichever of Mr. Lichtenstein and Mr.Wright is still serving on the Board of Directors; (d) effective immediately,none of the bylaw amendments described above in (a) through (c) of thisparagraph, nor the amendment described in (d) of this paragraph, shall beamended or repealed by the Board of Directors other than by a majority votethat includes whichever of Mr. Lichtenstein or Mr. Wright is still serving onthe Board of Directors; and (e) effective immediately, if the Company increasesthe number of directors to be elected at a stockholder meeting after astockholder has previously nominated one or more candidates for election to theBoard of Directors at that meeting in accordance with the Company’s advancenotice bylaw, that stockholder will be entitled to nominate an equal number ofadditional candidates within ten days following the Company’s publicannouncement of the increase.

Effective September 10, 2001, the Company’sBoard of Directors amended the Company’s stockholder rights plan so that thestock purchase rights issued thereunder will be triggered if, without priorapproval of the Board of Directors, a person or group becomes the beneficialowner of 20% of the Company’s outstanding shares.  The previous trigger level of the rights was 15%.  The amendment also confirms that the act ofparticipating in a demand for a special meeting of stockholders will not byitself trigger the rights.

**ITEM 6.            EXHIBITS AND REPORTS ON FORM 8-K**

(a)         Exhibits.
3.1Third Amended and Restated Bylaws of Tab  Products Co. (incorporated by reference to Exhibit 3.5 to the Company’s  Current Report on Form 8-K/A filed on September 19, 2001).  4.1Amendment No. 1 to the Rights Agreement  between the Company and Mellon Investor Services LLC (f/k/a ChaseMellon  Shareholder Services L.L.C.) (incorporated by reference to Exhibit 99.4 to  the Company’s Current Report on Form 8-K/A filed on September 13, 2001).  10.1Modification to Business Loan Agreement dated  August 21, 2001 from Comerica Bank.  10.2Agreement, made as of September 10, 2001, by  and among Tab Products Co., a Delaware corporation, Steel Partners II, L.P. a  Delaware limited partnership, Steel Partners L.L.C., a Delaware limited  liability company, Steel Partners Services, Ltd., a Delaware corporation, and  Warren G. Lichtenstein, a natural person and citizen of the United States of  America (incorporated by reference to Exhibit 99.1 to the Company’s Current  Report on Form 8-K filed on September 11, 2001).  10.3Agreement, made as September 10, 2001, by and  among Tab Products Co., a Delaware corporation, Henry Partners, L.P., a  Delaware limited partnership, Mathew Partners, L.P., a Delaware limited  partnership, and David W. Wright, a natural person and citizen of the United  States of America. (incorporated by reference to Exhibit 99.2 to the  Company’s Current Report on Form 8-K filed on September 11, 2001).
(b)        Reportson Form 8-K.

                           TheCompany filed a Current Report on Form 8-K dated June 20, 2001 in which itreported in Item 5 the relocation of its principal executive offices and in Item9 the Company’s Business Model, Turn-Around Plan and Actions, Fiscal Year 2001and Fiscal Fourth Quarter Non-Recurring Charges and Projections, Fiscal Year2002 and Fiscal First Quarter Projections and Strategic Outlook for FiscalYears 2003 through 2005.

                           TheCompany filed a Current Report on Form 8-K dated September 11, 2001 in which itreported in Item 5 that the Company entered into separate agreements withWarren G. Lichtenstein and David W. Wright and their affiliates relatingto their appointment as directors to the Board of Directors and the pendingproxy contest with Thaddeus Jaroszewicz for the election of directors to theBoard of Directors at the 2001 annual meeting scheduled for October 16,2001.

                           TheCompany filed a Current Report on Form 8-K/A dated September 11, 2001 settingforth pursuant to Item 5 Amendment No. 1 to Rights Agreement, dated as ofSeptember 10, 2001, between Tab Products Co. and Mellon Investor ServicesLLC (f/k/a ChaseMellon Shareholder Services, L.L.C.) (filing date September 13,2001).

                           TheCompany filed a Current Report on Form 8-K/A dated September 11, 2001 settingforth pursuant to Item 5 the form of the Third Amended and Restated Bylaws ofTab Products Co. (filing date September 19, 2001).

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
              TAB  PRODUCTS CO.                  (Registrant)  Date:    October 10, 2001/s/ Donald J. Hotz  Donald J. Hotz, Vice President, Chief Financial Officer &  Treasurer  Date:    October 10, 2001/s/ Robert J. Crecca  Robert J. Crecca Corporate Controller, Chief Accounting Officer  & Asst. Secretary