**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

**(Markone)**

 

**       ****ý****            QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**                        For the quarterly period endedNovember 30, 2001**

** **

**                                                                                                                OR**

** **

**       ****o****            TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**                        For the transition period from_______ to ________**

 

 

**Commissionfile 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.) |

 

**935Lakeview Parkway, Suite 195**

**VernonHills, IL  60061**

(Address of principal executive offices)

 

**(847)968-5400**

(Registrant's telephone number - including area code)

 

 

**NOTAPPLICABLE**

Former name, former address and former fiscal year,

if changed since last report.

 

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes ý    No o

 

 

Indicate the number ofshares outstanding of each of the issuer's classes of common stock, as of thelatest practicable date.  Common sharesoutstanding as of November 30, 2001 - 5,122,292

 

 

**TABPRODUCTS CO.**

 

**INDEX**

 

**PARTI.  FINANCIAL INFORMATION**

 
|                            |                                                                                                         |   |   |
|---------------------------------|--------------------------------------------------------------------------------------------------------------|--------|--------|
| **ITEM 1**                      | **Financial Statements (Unaudited):**                                                                        |   |   |
|                            |                                                                                                         |   |   |
|                            | Consolidated  Condensed Balance Sheets November 30, 2001 and May 31, 2001                                    |   |   |
|                            |                                                                                                         |   |   |
|                            | Consolidated  Condensed Statements of Earnings Three months and Six months ended November  30, 2001 and 2000 |   |   |
|                            |                                                                                                         |   |   |
|                            | Consolidated  Condensed Statements of Cash Flows Six months ended November 30, 2001 and  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  4**                     | Submission  of Matters to a Vote of Security Holders                                                         |   |   |
|                            |                                                                                                         |   |   |
| **ITEM 6**                      | Exhibits  and Reports on Form 8-K                                                                            |   |   |
|                            |                                                                                                         |   |   |
|                            | Signatures                                                                                                   |   |   |

 

**TABPRODUCTS CO.**

**CONSOLIDATED CONDENSED BALANCESHEETS (UNAUDITED)**

**(000'somitted except share and per share data)**

 
|                                                                                                                                                             |   | **November 30,  2001** |   | **May 31,2001** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|-----------------|--------|
| **ASSETS**                                                                                                                                                       |   |                        |   |            |   |
| **Current Assets:**                                                                                                                                              |   |                        |   |            |   |
| Cash and cash  equivalents                                                                                                                                       |   | $                           | 8,439  |            | $      | 5,872 |   |
| Short-term investments                                                                                                                                           |   | 2,396                       |   | 2,965           |   |
| Accounts receivable,  less allowances of$1,087 and $889 for doubtful accounts                                                                                    |   | 18,927                      |   | 23,507          |   |
| Inventories                                                                                                                                                      |   | 5,312                       |   | 5,104           |   |
| Income tax receivable                                                                                                                                            |   | 197                         |   | 4,764           |   |
| Deferred income taxes                                                                                                                                            |   | 2,029                       |   | 3,002           |   |
| Prepaid expenses                                                                                                                                                 |   | 1,581                       |   | 1,548           |   |
|                                                                                                                                                             |   |                        |   |            |   |
| **Total  Current Assets**                                                                                                                                        |   | 38,881                      |   | 46,762          |   |
|                                                                                                                                                             |   |                        |   |            |   |
| Property, plant and equipment,  net of accumulated depreciation of$27,724 and $26,916                                                                            |   | 6,654                       |   | 7,516           |   |
| Goodwill, net                                                                                                                                                    |   | 2,512                       |   | 2,643           |   |
| Deferred pension asset                                                                                                                                           |   | 3,554                       |   | 3,134           |   |
| Deferred income taxes  and other assets                                                                                                                          |   | 3,900                       |   | 2,102           |   |
|                                                                                                                                                             |   |                        |   |            |   |
| **Total Assets**                                                                                                                                                 |   | $                           | 55,501 |            | $      | 62,157 |   |
|                                                                                                                                                             |   |                        |   |            |   |
| **LIABILITIES AND STOCKHOLDERS'  EQUITY**                                                                                                                        |   |                        |   |            |   |
| **Current  Liabilities:**                                                                                                                                        |   |                        |   |            |   |
| Accounts payable                                                                                                                                                 |   | $                           | 8,239  |            | $      | 10,816 |   |
| Compensation payable                                                                                                                                             |   | 1,952                       |   | 2,290           |   |
| Other accrued  liabilities                                                                                                                                       |   | 5,288                       |   | 7,277           |   |
|                                                                                                                                                             |   |                        |   |            |   |
| **Total Current Liabilities**                                                                                                                                    |   | 15,479                      |   | 20,383          |   |
|                                                                                                                                                             |   |                        |   |            |   |
| Non-current liabilities                                                                                                                                          |   | 1,271                       |   | 1,271           |   |
|                                                                                                                                                             |   |                        |   |            |   |
| Commitments and  contingencies                                                                                                                                   |   | -                           |   | -               |   |
|                                                                                                                                                             |   |                        |   |            |   |
| **STOCKHOLDERS’ EQUITY:**                                                                                                                                   |   |                        |   |            |   |
| **Preferred stock:** $.01 par value, authorized500,000 shares, issued-none                                                                                       |   | -                           |   | -               |   |
| **Common stock:** $.01 par value, authorized  25,000,000 shares, issued – November 2001 –  7,792,761 shares andMay  2001 -  7,742,137 shares |   | 78                          |   | 77              |   |
| Additional paid-in  capital                                                                                                                                      |   | 15,621                      |   | 15,236          |   |
| Stock subscription –  notes receivable                                                                                                                      |   | (198                        | )      | (397            | )      |
| Retained earnings                                                                                                                                                |   | 56,517                      |   | 57,974          |   |
| **Treasury stock:** November 2001 – 2,670,469 sharesand May 2001 - 2,535,969 shares                                                                         |   | (32,417                     | )      | (31,597         | )      |
| Accumulated other  comprehensive loss                                                                                                                            |   | (850                        | )      | (790            | )      |
|                                                                                                                                                             |   |                        |   |            |   |
| **Total Stockholders’ Equity**                                                                                                                              |   | 38,751                      |   | 40,503          |   |
|                                                                                                                                                             |   |                        |   |            |   |
| **Total Liabilities and  Stockholders’ Equity**                                                                                                             |   | $                           | 55,501 |            | $      | 62,157 |   |

 

**SeeNotes to Unaudited Consolidated Condensed Financial Statements.**

 

**TABPRODUCTS CO.**

**CONSOLIDATED CONDENSEDSTATEMENTS OF EARNINGS (UNAUDITED)**

**(000'somitted except share and per share data)**

 
|                                                                                     |   | **Three Months Ended** |   | **Six Months Ended** |   |
|------------------------------------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                                                                     |   | **November 30,**       |   | **November 30,**     |   |
|                                                                                     |   | **2001**               |   | **2000**             |   | **2001** |   | **2000** |   |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| **Revenues**                                                                             |   | $                      | 26,472 |                 | $      | 29,962 |   | $ | 54,977 |   | $ | 60,192 |   |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| **Costs and Expenses:**                                                                  |   |                   |   |                 |   |   |   |   |   |
| Cost of revenues                                                                         |   | 16,400                 |   | 18,573               |   | 33,750 |   | 38,039 |   |
| Selling, general and administrative                                                      |   | 10,993                 |   | 14,004               |   | 23,360 |   | 29,057 |   |
| Research and development                                                                 |   | 128                    |   | 162                  |   | 267 |   | 359 |   |
| **Total Costs and Expenses**                                                             |   | 27,521                 |   | 32,739               |   | 57,377 |   | 67,455 |   |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| **Operating Loss**                                                                       |   | (1,049                 | )      | (2,777               | )      | (2,400 | ) | (7,263 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Interest, net, and other                                                                 |   | (7                     | )      | (128                 | )      | 114 |   | (15 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Loss before income taxes                                                                 |   | (1,056                 | )      | (2,905               | )      | (2,286 | ) | (7,278 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Income tax benefit                                                                       |   | (398                   | )      | (1,177               | )      | (829 | ) | (2,759 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Net  loss before cumulative change in accounting principle                               |   | (658                   | )      | (1,728               | )      | (1,457 | ) | (4,519 | ) |
| Cumulative effect of a  change in accounting principle                                   |   | -                      |   | -                    |   | - |   | (330 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| **Net Loss**                                                                             |   | $                      | (658   | )                    | $      | (1,728 | ) | $ | (1,457 | ) | $ | (4,849 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Basic net loss per share  before cumulative effect of a change in accounting principle   |   | $                      | (0.13  | )                    | $      | (0.34 | ) | $ | (0.28 | ) | $ | (0.88 | ) |
| Cumulative effect of a  change in accounting principle                                   |   | -                      |   | -                    |   | - |   | (0.06 | ) |
| **Basic net loss per share**                                                             |   | $                      | (0.13  | )                    | $      | (0.34 | ) | $ | (0.28 | ) | $ | (0.94 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Shares used in computing  basic net loss per share                                       |   | 5,148,809              |   | 5,134,450            |   | 5,172,769 |   | 5,170,578 |   |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Diluted net loss per  share before cumulative effect of a change in accounting principle |   | $                      | (0.13  | )                    | $      | (0.34 | ) | $ | (0.28 | ) | $ | (0.88 | ) |
| Cumulative effect of a  change in accounting principle                                   |   | -                      |   | -                    |   | - |   | (0.06 | ) |
| **Diluted net loss per share**                                                           |   | $                      | (0.13  | )                    | $      | (0.34 | ) | $ | (0.28 | ) | $ | (0.94 | ) |
|                                                                                     |   |                   |   |                 |   |   |   |   |   |
| Shares used in computing  diluted net loss per share                                     |   | 5,148,809              |   | 5,134,450            |   | 5,172,769 |   | 5,170,578 |   |

 

**SeeNotes to Unaudited Consolidated Condensed Financial Statements.**

 

**TABPRODUCTS CO.**

**CONSOLIDATED CONDENSEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

**(000'somitted)**

** **
|                                                                                            |   | **Six Months Ended** |           |
|-------------------------------------------------------------------------------------------------|--------|----------------------|----------------|
|                                                                                            |   | **November 30,**     |           |
|                                                                                            |   | **2001**             |           | **2000** |   |
| **OPERATING ACTIVITIES:**                                                                       |   |                 |           |   |   |
|                                                                                            |   |                 |           |   |   |
| Net loss                                                                                        |   | $                    | (1,457         | ) | $ | (4,849 | ) |
| 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                                                                  |   | 1,450                |           | 2,198 |   |
| Deferred income tax  (benefit) provision                                                        |   | (978                 | )              | 242 |   |
| Issuance of common stock  to 401(k) plan                                                        |   | 212                  |           | 202 |   |
| Loss on sale of fixed  assets                                                                   |   | 22                   |           | 181 |   |
| Changes in operating  assets and liabilities:                                                   |   |                 |           |   |   |
| Accounts receivable, net                                                                        |   | 4,580                |           | 1,814 |   |
| Inventories                                                                                     |   | (208                 | )              | 648 |   |
| Income tax receivable                                                                           |   | 4,567                |           | (487 | ) |
| Prepaid expenses                                                                                |   | 1,918                |           | (2,361 | ) |
| Deferred pension asset                                                                          |   | (420                 | )              | - |   |
| Other assets                                                                                    |   | (1,798               | )              | (120 | ) |
| Accounts payable                                                                                |   | (2,577               | )              | 131 |   |
| Compensation payable                                                                            |   | (338                 | )              | (746 | ) |
| Other accrued  liabilities                                                                      |   | (1,934               | )              | 181 |   |
| **Net Cash Provided (Required) by  Operating Activities**                                       |   | 3,039                |           | (2,636 | ) |
|                                                                                            |   |                 |           |   |   |
| **INVESTING ACTIVITIES:**                                                                       |   |                 |           |   |   |
| Purchase of property,  plant and equipment, net                                                 |   | (554                 | )              | (668 | ) |
| Sale of property                                                                                |   | 20                   |           | - |   |
| Purchases of short-term  investments                                                            |   | (733                 | )              | (2,997 | ) |
| Sales of short-term  investments                                                                |   | 1,302                |           | 3,692 |   |
| **Net Cash Provided By Investing  Activities**                                                  |   | 35                   |           | 27 |   |
|                                                                                            |   |                 |           |   |   |
| **FINANCING ACTIVITIES:**                                                                       |   |                 |           |   |   |
| Dividends paid                                                                                  |   | -                    |           | (516 | ) |
| Purchase of treasury  stock                                                                     |   | (447                 | )              | - |   |
| **Net Cash Required by Financing Activities**                                                   |   | (447                 | )              | (516 | ) |
|                                                                                            |   |                 |           |   |   |
| Effect of exchange rate  changes on cash                                                        |   | (60                  | )              | 49 |   |
|                                                                                            |   |                 |           |   |   |
| Increase (decrease) in  cash and cash equivalents                                               |   | 2,567                |           | (3,076 | ) |
|                                                                                            |   |                 |           |   |   |
| Cash and cash  equivalents at beginning of period                                               |   | 5,872                |           | 5,724 |   |
|                                                                                            |   |                 |           |   |   |
| **Cash and Cash Equivalents at  End of Period**                                                 |   | $                    | 8,439          |   | $ | 2,648 |   |
|                                                                                            |   |                 |           |   |   |
| Cash  paid for:                                                                                 |   |                 |           |   |   |
| Interest                                                                                        |   | $                    | 1              |   | $ | 6 |   |
| Income  taxes, net of refunds received                                                          |   | $                    | (4,193         | ) | $ | (769 | ) |

 

**SeeNotes to Unaudited Consolidated Condensed Financial Statements.**

 

**TABPRODUCTS CO.**

 

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS (UNAUDITED)**

 

**1.**             **BASIS OFPRESENTATION**

 

                The Company's unaudited consolidated condensedfinancial statements have been prepared in accordance with generally acceptedaccounting principles and, in the opinion of management, reflect all adjustments(consisting only of normal recurring adjustments) considered necessary tofairly state the Company's financial position, results of operations, and cashflows for the periods presented.  Theseconsolidated financial statements should be read in conjunction with theCompany's audited consolidated financial statements included in the Company'sAnnual Report on Form 10-K for the fiscal year ended May 31, 2001.  The results of operations for thethree-month and six-month periods ended November 30, 2001 are not necessarilyindicative of the results to be expected for any subsequent period 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 the following (inthousands):

 
|            |   | **November 30,  2001** |   | **May 31,2001** |   |
|-----------------|--------|------------------------|--------|-----------------|--------|
| Finished goods  |   | $                      | 1,422  |            | $      | 1,443 |   |
| Work in process |   | 359                    |   | 272             |   |
| Raw materials   |   | 3,531                  |   | 3,389           |   |
|            |   | $                      | 5,312  |            | $      | 5,104 |   |

 

**3.**                **DIVIDENDS**

 

    Dividends declared for the six-month periodended November 30, 2000 were as follows:

 
| **Record  Date**   |   | **Shares  Outstanding** |   | **Dividend  Per Share** |   |
|--------------------|--------|-------------------------|--------|-------------------------|--------|
|               |   |                    |   |                    |   |
| Fiscal  2001:      |   |                    |   |                    |   |
| August  25, 2000   |   | 5,120,147               |   |                    | $.05   |   |
| November  24, 2000 |   | 5,147,148               |   |                    | $.05   |   |

 

    On March 27, 2001, the Company’s Board ofDirectors discontinued the cash dividend on the common stock of theCompany for quarters ending February 28, 2001 and later.

 

**4.             Segment Reporting**

Operatingsegments are defined as components of an enterprise about which separatefinancial information is available that is evaluated regularly by the chiefoperating decision maker, or chief operating decision making group, in decidinghow to allocate resources and in assessing performance.  The Chief Executive Officer is the Company'schief operating decision maker. The Company operates and is managed internallyby four geographic operating segments. The operating segments consist of theUnited States, Canada, the Netherlands and Australia. Outside the UnitedStates, each operating segment has a general manager that reports to the VicePresident, 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** |       | **Six Months Ended** |       |
|------------------------------------|--------|------------------------|------------|----------------------|------------|
|                               |   | **November 30,**       |       | **November 30,**     |       |
|                               |   | **2001**               |       | **2000**             |       | **2001** |   | **2000** |   |
| Revenues:                          |   |                   |       |                 |       |   |   |   |   |
| United States                      |   | $                      | 20,186     |                 | $          | 22,840 |   | $ | 42,544 |   | $ | 46,117 |   |
| Canada                             |   | 4,712                  |       | 5,171                |       | 9,095 |   | 10,132 |   |
| Netherlands                        |   | 795                    |       | 965                  |       | 1,486 |   | 1,937 |   |
| Australia                          |   | 779                    |       | 986                  |       | 1,852 |   | 2,006 |   |
| Consolidated Total                 |   | $                      | 26,472     |                 | $          | 29,962 |   | $ | 54,977 |   | $ | 60,192 |   |
|                               |   |                   | ** ** |                 | ** ** |   | ** ** |   | ** ** |
| (Loss) income before income taxes: |   |                   |       |                 |       |   |   |   |   |
| United States                      |   | $                      | (1,098     | )                    | $          | (3,147 | ) | $ | (2,656 | ) | $ | (7,817 | ) |
| Canada                             |   | 114                    |       | 121                  |       | 259 |   | 309 |   |
| Netherlands                        |   | (23                    | )          | 173                  |       | 133 |   | 265 |   |
| Australia                          |   | (49                    | )          | (52                  | )          | (22 | ) | (35 | ) |
| Consolidated Total                 |   | $                      | (1,056     | )                    | $          | (2,905 | ) | $ | (2,286 | ) | $ | (7,278 | ) |
|                               |   |                   | ** ** |                 | ** ** |   | ** ** |   | ** ** |
| Depreciation and amortization:     |   |                   |       |                 |       |   |   |   |   |
| United States                      |   | $                      | 593        |                 | $          | 1,024 |   | $ | 1,238 |   | $ | 2,011 |   |
| Canada                             |   | 81                     |       | 56                   |       | 165 |   | 128 |   |
| Netherlands                        |   | 15                     |       | 21                   |       | 28 |   | 36 |   |
| Australia                          |   | 8                      |       | 11                   |       | 19 |   | 23 |   |
| Consolidated Total                 |   | $                      | 697        |                 | $          | 1,112 |   | $ | 1,450 |   | $ | 2,198 |   |

 
|                                                             |   | **November 30, 2001** |   | **May 31, 2001** |   |
|------------------------------------------------------------------|--------|-----------------------|--------|------------------|--------|
| Property, plant and equipment, net of  accumulated depreciation: |   |                  |   |             |   |
| United States                                                    |   | $                     | 5,962  |             | $      | 6,814 |   |
| Canada                                                           |   | 338                   |   | 359              |   |
| Netherlands                                                      |   | 124                   |   | 123              |   |
| Australia                                                        |   | 230                   |   | 220              |   |
| Consolidated Total                                               |   | $                     | 6,654  |             | $      | 7,516 |   |
|                                                             |   |                  |   |             |   |
| Total assets:                                                    |   |                  |   |             |   |
| United States                                                    |   | $                     | 45,476 |             | $      | 51,273 |   |
| Canada                                                           |   | 6,965                 |   | 7,570            |   |
| Netherlands                                                      |   | 1,780                 |   | 1,680            |   |
| Australia                                                        |   | 1,280                 |   | 1,634            |   |
| Consolidated Total                                               |   | $                     | 55,501 |             | $      | 62,157 |   |

 

Geographic revenues arebased 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.                COMPREHENSIVELOSS**

 

Thecomponents of comprehensive loss, net of tax, are as follows (in thousands):

 
|                          |   | **Three Months Ended** |   | **Six Months Ended** |   |
|-------------------------------|--------|------------------------|--------|----------------------|--------|
|                          |   | **November 30,**       |   | **November 30,**     |   |
|                          |   | **2001**               |   | **2000**             |   | **2001** |   | **2000** |   |
| Net loss                      |   | $                      | (658   | )                    | $      | (1,728 | ) | $ | (1,457 | ) | $ | (4,849 | ) |
| Foreign currency  translation |   | (116                   | )      | (168                 | )      | (60 | ) | (255 | ) |
|                          |   |                   |   |                 |   |   |   |   |   |
| Comprehensive loss            |   | $                      | (774   | )                    | $      | (1,896 | ) | $ | (1,517 | ) | $ | (5,104 | ) |

 

Accumulated othercomprehensive loss, net of tax, presented on the accompanying unauditedconsolidated condensed balance sheets consists of the following (in thousands):

 
|                          |   | **November 30,  2001** |   | **May 31,****2001** |   |
|-------------------------------|--------|------------------------|--------|---------------------|--------|
| Foreign currency  translation |   | $                      | (850   | )                   | $      | (790 | ) |
|                               |        |                        |        |                     |        |  |  |

 

**6.             STOCKREPURCHASE PROGRAM**

 

                On September 17, 2001, the Company announcedthat its Board of Directors authorized management to make discretionaryrepurchases of up to 10% of the Company’s common stock during the next twelvemonths at market prices. During the quarter ended November 30, 2001, theCompany repurchased 104,500 shares of stock at a total cost of $447,000 ($4.28per share average).  Repurchases weremade in open market transactions.

 

**7.                RECENTLYISSUED ACCOUNTING PRONOUNCEMENTS**

 

In June 2001, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 141(“SFAS No. 141”), Business Combinations, which eliminates the pooling ofinterests method of accounting for all business combinations initiated afterJune 30, 2001 and addresses the initial recognition and measurement of goodwilland other intangible assets acquired in a business combination.  The Company will adopt SFAS No. 141 forbusiness combinations initiated after June 30, 2001.

 

In June 2001, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 142(“SFAS No. 142”), Goodwill and Other Intangible Assets.  SFAS No. 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.

 

The Company will adopt Statement ofFinancial Accounting Standards No. 144, (“SFAS No. 144”), Accounting for theImpairment or Disposal of Long-Lived Assets, effective June 1, 2002.  SFAS No. 144 addresses financial accountingand reporting for the impairment or disposal of long-lived assets.  SFAS No. 144 supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets toBe Disposed Of, and the accounting and reporting provisions of APB Opinion No.30, Reporting the Results of Operations – Reporting the Effects of Disposal ofa Segment of a Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions, for the disposal of a segment of a business (aspreviously defined in that Opinion). The Company does not expect the adoption of SFAS No. 144 to have amaterial effect on the consolidated position or results of operations of theCompany.

 

**8.                CHANGES IN ACCOUNTING PRINCIPLE**

 

In June 1998, the Financial AccountingStandards Board issued Statement of Financial Accounting Standards No. 133(“SFAS No. 133”), Accounting for Derivative Instruments and Hedging Activities*. *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 Securities and ExchangeCommission (SEC) issued Staff Accounting Bulletin No. 101 (“SAB No.101”),Revenue Recognition in Financial Statements, which provides guidance related torevenue recognition based on interpretations and practices followed by the SECand was effective the first fiscal quarter of fiscal years beginning afterDecember 15, 1999.  SAB No. 101 requirescompanies to report any changes in revenue recognition as a cumulative changein accounting principal at the time of implementation in accordance withAccounting Principles Board Opinion 20, Accounting Changes.  Subsequently, SAB Nos. 101A and 101B wereissued to delay the implementation of SAB No. 101.

After evaluation of the Company’s revenuerecognition policies compared to the guidance in SAB No. 101, the Companychanged 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 financialstatements and 10Q filings to properly reflect the beginning of the yearrecording of the cumulative effecton prior years (to May 31, 2000) of a change in accounting principle.  The cumulative effect of the change inaccounting principle was a charge of $330,000 in the first quarter of fiscalyear 2001.

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

 

This report,including without limitation the following section regarding Management’sDiscussion and Analysis of Financial Condition and Results of Operations,contains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended, regarding the Company and its business, financialcondition, results of operations and prospects.   Words such as “expects,” “may,” “will,” “should,” “forecasts,”“potential,” “continue,” “anticipates,” “intends,” “plans,” “projections,”“believes,” “seeks,” “foreseeable,” “estimates,” and similar expressions orvariations of such words are intended to identify forward-looking statements.  Additionally, statements concerning futurematters such as the development of new products, enhancements or technologies,possible changes in legislation and other statements regarding matters that arenot historical are forward-looking statements. These statements are only predictions.

 

Although forward-lookingstatements in this report reflect the good faith judgment of the Company’smanagement, such statements can only be based on facts and factors currentlyknown by the Company.  Consequently,forward-looking statements are inherently subject to risks and uncertaintiesand actual results and outcomes may differ materially from the results andoutcomes discussed in the forward-looking statements.  Factors that could cause or contribute to such differences inresults and outcomes include without limitation those discussed in “BusinessEnvironment and Risk Factors” as well as those discussed elsewhere in thisreport.  Readers are urged not to placeundue reliance on these forward-looking statements, which speak only as of thedate of this report.  Readers are urgedto carefully 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 discussionof the Company’s financial condition and results of operations should be readin conjunction with the Unaudited Consolidated Condensed Financial Statementsof the Company.

 

**Capital Resources and Liquidity**

 

                At November 30, 2001, the Company had cash,cash equivalents and short-term investments of $10.8 million, an increase of$2.0 million from the $8.8 million at May 31, 2001.  The increase in cash is primarily the result of a reduction inaccounts receivable of $4.6 million from $23.5 million at May 31, 2001 to $18.9million at November 30, 2001 and a $4.5 million tax refund received in July2001.  Such increases to cash werepartially offset by the operating loss during the period, the repurchase ofcommon stock during the period and the payment of certain liabilities accruedin the prior year.  The Company’sworking capital position at November 30, 2001 was $23.4 million as comparedwith $26.4 million at May 31, 2001.  Thecurrent ratio of 2.5 at November 30, 2001 was higher than the current ratio of2.3 reported for May 31, 2001.

 

                Investments in property, plant and equipment,which were primarily focused on company-wide management information systems andproduction equipment, were $0.6 million for the six months ended November 30,2001.   Capital expenditures to supportoperations for fiscal 2002 are expected to total approximately $0.9 million.

 

The Company paid no cashdividends in the six-month period ended November 30, 2001 and $0.5 million incash dividends in the six-month period ended November 30, 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 no outstanding debtbut maintains 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 November 30, 2001.  The Company believes that its current cash, future cash flows andborrowing capacity will provide sufficient working capital for the next twelvemonths.

 

##### **Results ofOperations**

 

**Revenues** for the second quarter of fiscal 2002 were$26.5 million, down $3.5 million or 11.6% from the $30.0 million revenuereported in the second quarter of fiscal 2001. Revenues for the six monthsended November 30, 2001 were $55.0 million, down $5.2 million or 8.7% from the$60.2 million revenue reported for the six months ended November 30, 2000.  The decrease in revenues was primarilyattributable to a decline in supplies and service revenue in the U.S combinedwith lower sales from international operations.  The events of September 11, 2001 had a negative impact onrevenues.

 

**Cost of Revenue**, as a percentage of revenues, was 62.0% forthe second quarter of fiscal 2002, the same percentage as the cost of revenuereported in the second quarter of fiscal 2001. For the six months ended November 30, 2001, cost of revenue was 61.4% ascompared to the 63.2% cost of revenue in the first six months of the priorfiscal year.  The decrease in the costof revenue percentage was primarily due to an improved mix of products combinedwith lower manufacturing costs and slightly higher selling prices in fiscal2002.

 

**Operating Expenses**were $11.1 million or 42.0% of total revenues for the second quarter of fiscal2002 as compared to $14.2 million or 47.3% of total revenues for the secondquarter of fiscal 2001.  Expenses in thesecond quarter of fiscal 2002, as compared to the second quarter of fiscal2001, are lower primarily due to decreased employee headcount, decreased branchoffice expenses, reduced depreciation and reduced amortization of goodwill forthe Company’s imaging services facility. Such goodwill was written-off in its entirety as of May 31, 2001, andaccordingly, there is no comparable amortization in the second quarter offiscal 2002.  The lower expenses werepartially offset by a second quarter fiscal 2002 cost of $0.3 million relatedto the proxy contest that ended in October 2001.  There is no comparable expense related to the proxy contest inthe second quarter of fiscal 2001.

Operating expenses were $23.6 million or 43.0% oftotal revenues for the six months ended November 30, 2001 as compared to$29.4 million or 48.9% of total revenues for the six months ended November 30,2000.  Expenses for the six months endedNovember 30, 2001, as compared to the six months ended November 30, 2000, arelower primarily due to a first quarter fiscal 2001 one-time charge of $1.4million due to the retirement of the Company’s former CEO, decreased employeeheadcount, decreased branch office expenses, reduced depreciation and reducedamortization of goodwill for the Company’s imaging services facility.  Such goodwill was written-off in itsentirety as of May 31, 2001, and accordingly, there is no comparableamortization in the six months ended November 30, 2001.  The lower expenses for the six months endedNovember 30, 2001 were partially offset by $0.7 million of costs related to theproxy contest that ended in October 2001. There is no comparable expense related to the proxy contest in the sixmonths ended November 30, 2000.

 

**Interest, net**, **and other**was an expense of $7,000 in the second quarter of fiscal 2002 as comparedto an expense of  $128,000 in the secondquarter of fiscal 2001.  For the sixmonths ended November 30, 2001, interest, net and other was income of $114,000and for the six months ended November 30, 2000 it was an expense of$15,000.  The reduced expense for thethree and six months ended November 30, 2001 was primarily due to foreignexchange gains partially offset by lower interest rates earned on the cashbalances.

 

**Income Tax Benefit. **Net losses for the second quarter of fiscal 2002 and for the six monthsended November 30, 2001 have been reduced by the amount of the tax benefitavailable from the carryforward of net operating losses to future periods.  The effective rate is 37.7% for the secondquarter of fiscal 2002 and the effective rate is 40.5% for second quarter offiscal 2001.   The six months endedNovember 30, 2001 effective tax rate is 36.3% compared to 37.9% for the sixmonths ended November 30, 2000.

 

**Net Loss Per Share** for the second quarter of fiscal 2002 was $0.13 for both basic anddiluted shares compared to a net loss per share of $0.34 for both basic anddiluted shares for the second quarter of fiscal 2001.  Net loss for both basic and diluted shares was $0.28 for the sixmonths ended November 30, 2001 and $0.94 for the six months ended November 30,2000.

 

**Cumulative Effect of a Changein 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.

 

### **RecentlyIssued Accounting Standards**

In June 2001, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 141 (“SFAS No. 141”), Business Combinations, which eliminates the poolingof interests method of accounting for all business combinations initiated afterJune 30, 2001 and addresses the initial recognition and measurement of goodwilland other intangible assets acquired in a business combination.  The Company will adopt SFAS No. 141 forbusiness combinations initiated after June 30, 2001.

 

InJune 2001, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standard No. 142 (“SFAS No. 142”), Goodwill and OtherIntangible Assets.  SFAS 142 addressesthe initial recognition and measurement of intangible assets acquired outsideof a business combination and the accounting for goodwill and other intangibleassets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives beamortized and that goodwill and intangible assets with indefinite lives willnot be amortized, but will rather be tested at least annually forimpairment.  The Company will adopt SFASNo. 142 on June 1, 2002.  Upon adoptionof SFAS No. 142, the Company will stop the amortization of goodwill thatresulted from prior business combinations. The Company will evaluate goodwill under the SFAS No. 142 transitionalimpairment test and has not yet determined whether or not there is animpairment loss.  Any transitionalimpairment loss will be recognized as a change in accounting principle.

 

The Company will adopt Statement ofFinancial Accounting Standards No. 144, (“SFAS No. 144”), Accounting for theImpairment or Disposal of Long-Lived Assets, effective June 1, 2002.  SFAS No. 144 addresses financial accountingand reporting for the impairment or disposal of long-lived assets.  SFAS No. 144 supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets toBe Disposed Of, and the accounting and reporting provisions of APB Opinion No.30, Reporting the Results of Operations – Reporting the Effects of Disposal ofa Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Eventsand Transactions, for the disposal of a segment of a business (as previouslydefined in that Opinion).  The Companydoes not expect the adoption of SFAS No. 144 to have a material effect on theconsolidated financial position or results of operations of the Company. 

 

**Business Environment AndRisk Factors**

                The Company'sfuture operating results may be affected by various trends and factors, whichwe must successfully 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.

*                Failureto manage expenses in alignment with revenues could adversely impact ourresults of operations and financial condition.*  Weincurred significant one-time costs in fiscal 2001 to restructure our expenselevels in line with expected revenues. If this restructuring does not prove to be sufficient or if we fail totake additional actions that may become necessary to align future expenses withfuture revenue levels, our results of operations and financial condition couldbe adversely impacted.

*An accelerated move to digital technology by our customerscould 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, thelong-term effects are not known at this time.

 

*We may not be able to achievehigher market penetration for sales of large document management solutionprojects.* Although from fiscal 2001 onward we have focused our sellingefforts on obtaining a balanced mix of orders of varying sizes and types, largeprojects may be important to achieving revenue growth.  While the Company does not know of any largecompetitor with the capability to handle these large projects, if we fail toachieve significant market penetration for such projects, revenue growth may belimited and our results of operations may be adversely impacted.

*If we cannot attract or retain key qualified personnel, our business,results of operations and financial condition may be adversely impacted*. Our future performancedepends in significant 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.

*Our operating results may fluctuate from period to period.*  Factors affecting our operating results and gross margins include thevolume of product sales, competitive pricing pressures, the ability to matchsupply with demand, changes in product and customer mix, market acceptance ofnew or enhanced versions of our products and services, changes in the channelsthrough which our products and services are distributed, changes in our productmix, timing of new product announcements and introductions by us and ourcompetitors, fluctuations in product costs, variations in manufacturing cycletimes, fluctuations in manufacturing utilization, our ability to achievemanufacturing volumes with our new and existing products, increased researchand development expenses, exchange rate fluctuations, a change in our effectivetax rate and changes 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 byunexpected events.* Although we believe that we have sufficient cash on hand and cash fromoperations to satisfy our working capital needs for the next twelve months, anysignificant unexpected cash requirements could adversely impact ourliquidity.  In those circumstances, wewould be required to seek third party financing and we cannot be certain thatfinancing 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 thenext twelve months, investors are cautioned that such projections inherentlyinvolve risks and uncertainties.

*Failure 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.

 

*Failure toobtain sufficient quantities of critical components could adversely impact ourbusiness, financial condition and results of operations.*  We purchase several critical components fromsingle or sole source vendors for which alternative sources are not currentlyin place.  We do not maintain long-termsupply agreements with any of these vendors. Development of alternative supply sources would require a significantamount of time to qualify in the case of certain of our components.    The inability to develop alternativesources for these single or sole source components or to obtain sufficientquantities of these components could result in delays or reductions in productshipments, which could adversely affect our business, financial condition andresults of operations.

 

*Failure to achieveplanned manufacturing volumes could adversely impact our business, financialcondition and results of operations.*  There canbe no assurance that our manufacturing facilities will achieve or maintainacceptable manufacturing volumes in the future.  The inability to achieve planned volumesfrom our manufacturing facilities could have an adverse effect on our business,financial condition and results of operations. Any problems experienced by us in our current or future transitions tonew processes and products or the consolidation of manufacturing operationscould have a material adverse effect on our business, financial condition andresults of operations.

 

*Sales to the U.S. Government mayresult in fluctuations due to their budget constraints and newinitiatives. *Government revenues primarily expose us to risks from reductions inbudget allocations to support regulation and administrative offices.  The government may periodically undertakeinitiatives that create opportunities to help them streamline workflowprocesses, reduce paperwork and increase customer service, which may provideshort-term opportunities for us. However, the long-term effect of a government initiative to streamlineprocesses could eventually have a negative impact on our business, financialcondition and results of operations.

 

*Unfavorable intellectual propertydevelopments could adversely impact our business and results of operations.*  We rely on a combination ofpatents, trademarks, copyright and trade secret laws, confidentialityprocedures and licensing arrangements to protect our intellectual propertyrights.  We have been notified in thepast and may be notified in the future of claims that they may be infringingupon patents or other 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 the primarycountries where our products can be sold to provide meaningful protection orany commercial advantage to us. Additionally, our competitors may be able to design around our patents.

 

*A significant decrease in international sales couldadversely impact our business, financial condition and results of operations.*  Internationalsales accounted for approximately 25% and 22%, respectively of our totalrevenues in fiscal 2001 and 2000. Fluctuations in currencies negatively impacted us in fiscal 2001 andcould adversely affect our business, financial condition and results ofoperations in the future.  Because salesof our products have been denominated to date primarily in United Statesdollars, increases in the value of the United States dollar could increase theprice of our products so that they become relatively more expensive tocustomers in the local currency of a particular country, leading to a reductionin sales and profitability in that country. We are subject to the risks of conducting business internationally,including foreign government regulation and general geopolitical risks such aspolitical and economic instability, potential hostilities and changes indiplomatic and trade relationships. Manufacturing and sales of our products may also be materially adverselyaffected by factors such as unexpected changes in, or imposition of, regulatoryrequirements, tariffs, import and export restrictions and other barriers andrestrictions, longer payment cycles, greater difficulty in accounts receivablecollection, potentially adverse tax consequences, the burdens of complying witha variety of foreign laws and other factors beyond our control.  In addition, the laws of certain foreigncountries in which our products are or may be developed, manufactured or sold,may not protect our intellectual property rights to the same extent as do thelaws of the United States and thus make piracy of our products a more likelypossibility.  There can be no assurancethat these factors will not have a material adverse effect on our business,financial condition and results of operations.

 

**ITEM 3.****                   QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS**

 

TheCompany is exposed to market risk related to fluctuations in interest rates andin foreign currency exchange rates.

TheCompany’s exposure to market risk due to fluctuations in interest rates relatesprimarily to its short-term investment portfolio, which consists of corporatedebt securities, which are classified as available-for-sale and were reportedat an aggregate fair value of $2.4 million as of November 30, 2001.  These available-for-sale securities aresubject to interest rate risk inasmuch as their fair value will fall, if marketinterest rates increase.  If marketinterest rates were to increase immediately and uniformly by 10% from thelevels prevailing at November 30, 2001, the fair value of the portfolio wouldnot decline by a material amount.  TheCompany does not use derivative financial instruments to mitigate the risksinherent in these securities.  However,the Company does attempt to reduce such risks by typically limiting thematurity date of such securities to no more than nine months, placing itsinvestments with high credit quality issuers and limiting the amount of creditexposure with any one issuer.  Inaddition, the Company believes that it currently has the ability to hold theseinvestments until maturity, and therefore, believes that reductions in thevalue of such securities attributable to short-term fluctuations in interestrates would not materially affect the financial position, results of operationsor cash flows of the Company.

TheCompany’s exposure to market risk due to fluctuations in foreign currencyexchange rates relates primarily to the intercompany balance with its Netherlandssubsidiary.  Although the Companytransacts business with various foreign countries, settlement amounts areusually based on local currency. Transaction gains or losses have not been significant in the past andthere is no hedging activity on Netherlands Guilders or other currencies.  Based on the intercompany balance of $27,000at November 30, 2001, a hypothetical 10% adverse change in Netherlands Guildersagainst U.S. dollars would not result in a material foreign exchange loss.  Consequently, the Company does not expectthat reductions in the value of such intercompany balances or of other accountsdenominated in foreign currencies resulting from even a sudden or significantfluctuation in foreign exchange rates, would have a material impact on theCompany’s financial position, results of operations or cash flows.

InJanuary 1999, certain member countries of the European Union establishedpermanent, fixed conversion rates between their existing currencies and theEuropean Union's common currency (the Euro). The transition period forconversion to the Euro was January 1, 1999 through January 1, 2002, at whichtime all legal tender within the participating member countries converted tothe Euro.  The timing of phasing out alluses of existing currencies will comply with the legal requirements and also bescheduled to facilitate optimal coordination with the plans of our vendors,distributors and customers. Work related to the introduction of the Euro andthe phasing out of the other currencies includes converting informationtechnology systems; recalculating currency risk; and taking action, if needed,regarding continuity of contracts; and modifying our processes for preparingtax, accounting, payroll and customer records. Management believes the introduction of the Euro and the phasing out ofthe other currencies will not have a material impact on the Company's financialcondition, results of operations, or cash flows.

Notwithstanding theforegoing analysis of the direct effects of interest rate and foreign currencyexchange rate fluctuations on the value of certain of the Company’s investmentsand accounts, the indirect effects of such fluctuations could have a materialadverse effect on the Company’s business, financial condition and results of operations.  For example, international demand for theCompany’s products could be affected by foreign currency exchange rates.  In addition, interest rate fluctuations mayaffect 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’s financial condition, results of operations, and cash flows.

 

**PARTII: OTHER INFORMATION**

 

**ITEM 4.                                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

(a)                TheCompany held its Annual Meeting of Stockholders on October 16, 2001.

(b)                Thefollowing persons, which constitute all of managements’ nominees for electionas director as listed in the proxy statement, were elected:  Gary W. Ampulski, Kathryn S. Hanson, JeffreyA. Heimbuck, Warren G. Lichtenstein, Jerry K. Myers, Hans A. Wolf and David W.Wright.

(c)                Stockholderswere asked to vote on three matters at the Annual Meeting as follows: (1)election of seven persons to serve as directors, (2) approval of the adoptionof the Company’s 2001 Stock Option Plan, and (3) ratification of theappointment of Deloitte & Touche LLP as the independent accountants of theCompany for the fiscal year ending May 31, 2002.  The election of directors was contested by Thaddeus S.Jaroszewicz and five other nominees.

 

Thevotes for each of the three matters were as follows:

 

Electionof Directors

 
|                     |   | **In  Favor** |   | **Withheld** |   |
|--------------------------|--------|---------------|--------|--------------|--------|
| Gary  W. Ampulski        |   | 2,716,444     |   | 433,867      |   |
| Kathryn  S. Hanson       |   | 2,693,799     |   | 456,512      |   |
| Jeffrey  A. Heimbuck     |   | 2,715,744     |   | 434,567      |   |
| Warren  G. Lichtenstein  |   | 2,710,334     |   | 439,977      |   |
| Jerry  K. Myers          |   | 2,716,444     |   | 433,867      |   |
| Hans  A. Wolf            |   | 2,690,867     |   | 459,444      |   |
| David  W. Wright         |   | 2,711,034     |   | 439,277      |   |
| Thaddeus  S. Jaroszewicz |   | 1,200,942     |   | 34,969       |   |
| John  W. Boustead        |   | 1,201,668     |   | 34,243       |   |
| Mark  J. Dessy           |   | 1,201,668     |   | 34,243       |   |
| Watkins  C. Johnston     |   | 1,201,668     |   | 34,243       |   |
| Addison  Lanier, II      |   | 1,201,688     |   | 34,243       |   |
| David  H. Pease, III     |   | 1,201,668     |   | 34,243       |   |

 

Approvalof the Tab Products Co. 2001 Stock Option Plan

 
| For     |   | 3,496,724 |   |
|---------|--------|-----------|--------|
| Against |   | 799,179   |   |
| Abstain |   | 90,317    |   |

 

Ratificationof the appointment of Deloitte & Touche LLP as the Company’s independentaccountants for the fiscal year ending May 31, 2002

 
| For     |   | 4,283,692 |   |
|---------|--------|-----------|--------|
| Against |   | 46,856    |   |
| Abstain |   | 55,674    |   |

 

**ITEM 6.                                EXHIBITS ANDREPORTS ON FORM 8-K**

 

(a)                Exhibits.

 

10.1                Modificationto Business Loan Agreement between Comerica Bank-California and Tab ProductsCo. dated November 16, 2001

10.2                LoanRevision/Extension Agreement between Comerica Bank-California and Tab ProductsCo. dated November 16, 2001

 

(b)                Reportson Form 8-K.

 

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 the Boardof Directors at the 2001 annual meeting scheduled for October 16, 2001.

 

                The Company filed a CurrentReport on Form 8-K/A dated September 11, 2001 setting forth pursuant to Item 5Amendment No. 1 to Rights Agreement, dated as of September 10, 2001,between Tab Products Co. and Mellon Investor Services LLC (f/k/a ChaseMellonShareholder Services, L.L.C.) (filing date September 13, 2001).

 

                The Company filed a CurrentReport on Form 8-K/A dated September 11, 2001 setting forth pursuant to Item 5the form of the Third Amended and Restated Bylaws of Tab Products Co. (filingdate September 19, 2001).

 

                The Company filed a CurrentReport on Form 8-K dated October 18, 2001 in which it reported in Item 5 apress release of remarks made by the Company’s President and Chief ExecutiveOfficer, Gary W. Ampulski, during the Company’s Annual Meeting of Stockholdersheld on October 16, 2001.

 

                The Company filed a CurrentReport on Form 8-K dated October 22, 2001 in which it reported in Item 9 thaton October 16, 2001, Gary W. Ampulski, the President and Chief ExecutiveOfficer of the Company presented an overview and business outlook of theCompany during an interview with CEOcast.

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                                     |   |                 TAB PRODUCTS CO.                     |
|------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|                                     |   |                     (Registrant) |
|                                     |   |                                                                                                                            |
|                                     |   |                                                                                                                            |
|                                     |   |                                                                                                                            |
| Date:    January 11, 2002 |   | /s/ Donald J. Hotz                                                                                                              |
|                                     |   | Donald J. Hotz,                                                                                                                 |
|                                     |   | Vice President, Chief  Financial Officer & Treasurer                                                                        |
|                                     |   |                                                                                                                            |
|                                     |   |                                                                                                                            |
|                                     |   |                                                                                                                            |
| Date:    January 11, 2002 |   | /s/ Robert J. Crecca                                                                                                            |
|                                     |   | Robert J. Crecca                                                                                                                |
|                                     |   | Corporate Controller,  Chief Accounting Officer & Asst. Secretary                                                           |