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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

(Mark One)

~~/x/~~ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended May 31, 2002

for the fiscal year ended May 31, 2001

/o / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

for the transition period from to

Commission File Number 1-7736

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

Delaware		94-1190862
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Delaware
(State or other jurisdiction
of incorporation or organization)

94-1190862
(IRS Employer Identification No.)

935 Lakeview Parkway, Suite 195
Vernon Hills, Illinois 60061
(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Exchange on Which Registered
Common stock, $.01 par value		American Stock Exchange
Preferred Stock Purchase Rights, $.01 par value		American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ~~/ /~~ý

The aggregate market value of the voting stock held by non-affiliates of the Company as of June 30, ~~2001~~2002 was approximately $89,~~955~~460,~~728~~028. Shares of common stock held by by each officer and director and by each person or group who owns 5% or more of the outstanding common stock have been excluded in that such persons or groups may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of the Company's Common Stock outstanding as of June 30, ~~2001~~2002 was 5,~~187~~123,~~457~~915.

Documents Incorporated by Reference

To the extent stated herein, portions of the Definitive Proxy Statement, which will be filed within 120 days after the end of the Company's fiscal year, for the Annual Meeting of Stockholders ("Proxy Statement") to be held on October 16, 2001, are incorporated by reference into Part III.

PART I

ITEM 1. BUSINESS

General

Tab Products Co. (the "Company" or "TAB") operates in a single industry that manufactures and markets document management solutions, including services and products. The Company sells its offerings to, among other entities, government, insurance, finance and ~~health~~healthcare ~~care~~ organizations. The Company was incorporated in February 1954, and subsequently reorganized as a corporation under Delaware law in September 1986.

As of July 29, 2002, the Company entered into a Merger Agreement with T Acquisition Co. and T Acquisition L.P., affiliates of HS Morgan Limited Partnership, pursuant to which T Acquisition Co. will merge with and into the Company. Under the terms of the Merger Agreement, each share of the Company's common stock will be converted into the right to receive $5.85 per share in cash, or total consideration of approximately $34 million, including outstanding stock options. The merger is expected to close in the fourth calendar quarter of 2002. Consummation of the transaction is subject to the approval of the Company's stockholders, receipt of all necessary regulatory approvals, the buyer entering into definitive financing agreements and certain other conditions. The Merger Agreement was filed on July 29, 2002 as an exhibit to a Current Report on Form 8-K.

Business Strategy

Over its 50-year history, the Company has developed considerable expertise and a strong brand in the records ~~document~~management segment of the broader document management industry. The Company offers a value proposition to its market that is based on helping customers minimize the risk and cost involved in managing their mission critical documents. The business strategy is to provide significant expertise in the records management market, while offering services and products that provide complete solutions. The Company markets to its customers through multiple channels of distribution to achieve broad market coverage for all sized accounts, in the U.S., Canada, Europe and Australia. The Company has manufacturing facilities in the U.S. and Canada. Approximately 7576% of the Company's revenue comes from the U.S. operation and 2524% comes from the international businesses.

Principal Products And Services

The Company provides complete solutions that enable its customers to better organize, control and access their critical documents. By leveraging its 50 years of expertise in managing paper records and files, the Company can also effectively ~~supports~~support those clients who wish to integrate their paper-based systems into emerging technologies.

The Company's principal products and services include:

1): Filing Systems and Supplies
2): Document Management Software
3): Multimedia Storage & Furniture
4): Professional Consulting Services
5): Imaging Services
6): OEM Products

1. Filing Systems and Supplies

The Company provides a complete selection of customizable records management related filing supplies, tailored to fit clients' specific needs, each of which can be used alone or integrated with other TAB products, systems and services. These products include:

•: Rapid Response Color Coding, providing large customers with multiple locations a simple and cost effective color-coding solution providing daily generation of factory attached color-coded labels from the client's electronically submitted data
•: CompuColor® customized labels based on electronic submission of client data
•: FilePak, a cost-effective folder-labeling solution when a high degree of customization is not required
•: MaxPak, a factory applied self adhesive color-coding process offering exceptional economy where the features and benefits of a strip label are not required
•: TABQUIK® labels for day-forward generation of color-coded labeling on location at the client's place of business
•: End-tab folders for lateral filing systems
•: Top-tab folders for conventional pull drawer cabinets or hanging files in desk drawers and pedestals
•: Two-tab folders for use in both lateral or conventional cabinets and drawers
•: Roll labels
•: Classification folders
•: Expansion pockets
•: Filing system guides
•: X-ray jackets
•: Small document pockets
•: Pressure-sensitive pockets and fasteners
•: Oversized pockets with flap document dividers and indexes
•: Mylar-reinforced folders
•: Customized special purpose folders

Rapid Response Color Coding, providing large customers with multiple locations a simple and cost effective color-coding solution providing daily generation of factory attached color-coded labels from the client's electronically submitted data, CompuColor customized labels based on electronic submission of client data, FilePak, a cost-effective folder-labeling solution when a high degree of customization is not required, MaxPak, a factory applied self adhesive color-coding process offering exceptional economy where the features and benefits of a strip label are not required, TABQUIK labels for day-forward generation of color-coded labeling on location at the client's place of business, end-tab folders for lateral filing systems, top-tab folders for conventional pull drawer cabinets or hanging files in desk drawers and pedestals, two-tab folders for use in both lateral or conventional cabinets and

drawers, roll labels, classification folders, expansion pockets, filing system guides, x-ray jackets, small document pockets, pressure-sensitive pockets and fasteners, oversized pockets with flap document dividers and indexes, and Mylar-reinforced folders.

2. Document Management Software

The Company's technology-based automated tracking solutions are designed to provide clients full control of all their paper-based records, from the time those records are created through the time they are destroyed. These products include:

•: FileTracker®—A barcode-based software system that provides users with information regarding all current location of files. The integrated system consists of FileTracker® software, barcode labels and barcode readers.

~~File Tracker~~All FileTracker®—A ~~barcode-based~~ software ~~system~~systems ~~that~~include ~~provides~~on-site ~~users~~consultation, ~~with~~customization ~~information~~and ~~regarding~~training ~~all~~from ~~current location~~an ofexperienced ~~files.~~document ~~The~~management ~~system~~specialist. ~~consists~~A offully ~~File~~staffed ~~Tracker~~support organization ~~software,~~is ~~barcode~~available ~~labels~~through ~~and~~a ~~barcode~~toll-free ~~readers,~~number ~~all integrated~~ to provide anexpert ~~easy-to-use,~~advice ~~powerful~~on ~~system~~all FileTracker® issues.

All File Tracker software systems include on-site consultation, customization and training from an experienced document management specialist. A fully-staffed support organization is available through a toll-free number to provide expert advice on all File Tracker issues. 3

•: TABQUIK® Computerized Color Labeling System—Automated labeling software and a patented application system that provides easy, on-site production and application of custom-printed color labels and bar-coding for folders or other media. TABQUIK® is a customizable filing solution available in a Windows environment, appropriate for organizations of all sizes, from the small office to the large corporation.

TABQUIK® Computerized Color Labeling System—Automated labeling software and a patented application system that provides easy, on-site production and application of custom-printed color labels and bar-coding for folders or other media. TABQUIK is a customizable filing solution available in a Windows environment, appropriate for organizations of all sizes, from the small office to the large corporation.

3. Multimedia Storage & Furniture

The Company provides both stationary and mobile records storage systems. Mobile shelving systems, combined with expertise in design and implementation, provide ~~the~~ ~~most~~ an efficient system for filing and use of storage space. ~~Mobile Products include:~~

~~SIDE-TRAC®—A high-density, custom storage solution with cabinets arranged in two~~ Mobile ~~compact~~Products ~~rows.~~include: ~~The front cabinets glide from side to side on wheels, creating access to the cabinets in back.~~

•: SIDE-TRAC®—A high-density, custom storage solution with cabinets arranged in two compact rows. The front cabinets glide from side to side on wheels, creating access to the cabinets in back.
•: TAB-TRAC®, POWER-TRAC®, POWER-TRAC IR—High-density, custom storage solutions that place any shelving on tracks to create aisles only where and when they are needed. This eliminates the need for fixed aisles and yields up to 100% greater storage capacity. Based on the client's needs, stored materials are moved either manually or mechanically with TAB-TRAC® or electrically with POWER-TRAC®. POWER-TRAC IR provides enhanced user safety through the use of infrared technology.
•: UniStor®—A cost effective "capsule concept" filing solution designed for the storage of letter and legal size files.

TAB-TRAC®, POWER-TRAC™, POWER-TRAC IR™—High-density, custom storage solutions that place any shelving on tracks to create aisles only where and when they are needed. This eliminates the need for fixed aisles and yields up to 100% greater storage capacity. Based on the client's needs, stored materials are moved either manually or mechanically with TAB-TRAC or electrically with POWER-TRAC. POWER-TRAC IR provides enhanced user safety through the use of infrared technology.

UniStor™—A cost effective "capsule concept" filing solution designed for the storage of letter and legal size files.

Stationary Products include:

•: Spacefinder® Cabinets—Slim, durable and mobile-ready cabinets, appropriate for use when floor space, strength and economy are the key determinants.
•: Harmony Cabinets—A complete line of durable, maximum-capacity, pre-configured cabinets that blend into any office environment and can be color-coordinated with other TAB equipment and furniture.
•: Designer Series Cabinets—A high-quality, fully customizable cabinet solution that can accept any combination of components, thus offering flexibility and potential for growth. Designer cabinets are also mobile-ready, making it possible to increase storage density.
•: TwinFile®—A compact, modular, rotating filing unit that provides more linear filing inches per square foot than almost any other filing system.
•: Unit Spacefinder®—A filing system using TAB's "capsule concept," whereby the identification of records is in plain view from any position. Unit Spacefinder® requires very little floor space and allows multiple users to access files simultaneously.
•: Office Furniture—The Company markets a line of modular office furniture components, called eNcompass and eVantage that may be put together in a limitless number of productive configurations. They include office panel systems and clustered work centers with related components. This product line is directed at the established market for the open office environment.

~~Spacefinder® Cabinets—Slim, durable and mobile-ready cabinets, appropriate for use when floor space, strength and economy are the key determinants.~~ 4

Harmony™ Cabinets—A complete line of durable, maximum-capacity, pre-configured cabinets that blend harmoniously into any office environment and can be color-coordinated perfectly with other TAB equipment and furniture.

Designer Series™ Cabinets—A high-quality, fully customizable cabinet solution that can accept any combination of components, thus offering unlimited flexibility and potential for growth. Designer cabinets are also mobile-ready, making it possible to quickly and easily increase storage density.

TwinFile®—A compact, modular, rotating filing unit that provides more linear filing inches per square foot than almost any other filing system.

Unit Spacefinder—A filing system using TAB's "capsule concept," whereby the identification of records is in plain view from any position. Unit Spacefinder requires very little floor space and allows multiple users to access files simultaneously.

Open Shelf Filing—An economical, easy-to-assemble shelving system for facilities with limited floor space. Units are available in letter and legal size, with single- or double-faced sections, and are designed to grow with an organization's storage needs.

Modular Office Furniture—The Company markets a line of modular office furniture components, called eNcompass and eVantage that may be put together in a limitless number of productive configurations. They include office panel systems and clustered work centers with related components. This product line is directed at the established market for the open office environment.

4. Professional Consulting Services

The Company's professional services organization provides a broad range of integrated service and support programs to fit the specific needs of its clients. ~~These~~ These services are offered through the Company's own technical personnel and through its direct management of specialized service ~~suppliers~~providers. ~~Services include:~~

~~Consulting~~ Services~~—Using a thorough needs-assessment analysis, the Company's consultants work closely with clients to~~ ~~standardize~~include: their file structures, retention schedules and workflow processes by analyzing, designing and implementing an efficient records-classification and data-storage system. This increases the clients' productivity and provides significant space savings. The Company's consulting services also help clients design a strategy for implementing imaging systems in their organizations.

•: Consulting Services—Using a thorough needs-assessment analysis, the Company's consultants work closely with clients to standardize their file structures, retention schedules and workflow processes by analyzing, designing and implementing an efficient records-classification and data-storage system. This increases the clients' productivity and provides significant space savings. The Company's consulting services also help clients design a strategy for implementing imaging systems in their organizations.
•: File-Conversion Services—The Company provides full planning and implementation of the process by which clients transform their documents from one medium to another, such as changing from top-tab vertical drawers to side-tab color-code, or from paper to optical-image format. This change is designed to produce a system that is more appropriate for the client's current needs, thus providing a greater degree of efficiency in both storing and locating critical records and documents.

File-Conversion Services—The Company provides full planning and implementation of the process by which clients transform their documents from one medium to another, such as changing from top-tab vertical drawers to side-tab color-code, or from paper to optical-image format. This change is designed to produce a system that is more appropriate for the client's current needs, thus providing a greater degree of efficiency in both storing and locating critical records and documents.

5. Imaging Services

On The ~~May 25, 2000, the~~ Company ~~purchased substantially all of the imaging conversion operating assets of Docucon, Inc. (see Financial Condition in the Management~~'s ~~Discussion~~Imaging ~~and~~Services ~~Analysis~~operation ~~section.)~~has ~~This acquisition provides the Company with~~ in-house or on-site capabilities and technology to provide imaging conversion services ~~to its customers~~. Imaging conversions involve the use of integrated technology with an emphasis on the critical documents within the files, a higher level of indexing and access of documents at the desktop. In addition to handling all phases of integration into the chosen technology, it ismay also be necessary to archive the original documents into a traditional hard copy system.

Electronic Document Management Software—InThe ~~April 2000, the~~ Company ~~announced~~provides athe ~~partnership~~LibertyNet ~~with~~family ~~Liberty~~of ~~IMS~~software toproducts ~~serve as~~through a value-added reseller ~~(VAR) of the LibertyNet family of software products~~agreement. The Company ~~will~~offers ~~be offering~~ consulting and integration services in addition to the sale of this software, which automates the capture, management and retrieval of electronic records.

6. OEM Products

Forms Handling Equipment—The Company manufactures a line of forms handling equipment, including continuous forms bursters, decollators, mergers, conveyors and sealers.

Competition

Primary competitive factors in these markets are product quality, product design, service, delivery and price. The Company believes that its products' quality, ~~high~~ high level of service and systems approach to its products and services give it a strong competitive position.

4 Although no single competitor offers all the same products and services as the Company, there is substantial competition for each of the Company's product lines from nationwide and regional firms.

Although no single competitor offers all the same products and services as the Company, TAB faces substantial competition for each of its product lines from nationwide and regional firms.

Marketing and Sales

The Company's products are marketed in the United States, Canada, Europe and Australia through its sales branches, independent sales offices and distributors ("Channel Partners"), and telesales groups. The Company utilizes these multiple distribution channels to achieve ~~the~~broad ~~broadest~~ market coverage for small, mid- and large-sized customers. The ~~benefits~~Company ~~provided~~also byuses ~~the~~inbound ~~direct sales organization are its national coverage, sales control~~ and ~~low~~outbound ~~variable~~telesales ~~costs.~~in ~~The~~addition ~~benefits~~to ofcatalogs ~~the independent dealers are their speed~~ to ~~market~~reach ~~and~~its ~~low~~customer ~~fixed cost~~base. The ~~Company~~benefits ~~will~~provided ~~continue~~by tothe ~~strengthen~~direct ~~and~~sales ~~expand its network of independent dealers.~~

In June 1998, the Company notified its existing Channel Partners that effective June 1, 1999, the existing distributor contract would be canceled. A new contract was offered that eliminated the exclusive territory rights in the existing contract with other material terms and conditions remaining substantially the same. By February 1999, approximately one third of the Channel Partners adopted the new contract. In March 1999, the Company proposed an alternative contract that allowed the Channel Partners exclusivity on designated customers, but eliminated exclusivity on a territory basis. The Company believes the removal of territorial exclusivity is crucial to the Company's ability to serve its larger nationwide customers where an independent's resources cannot support the customer's professional services, technology and project management needs. As of May 31, 2001, all of the current Channel Partners had signed the revised contract. The Company is also seeking to expand its indirect distribution with the addition of Channel Partners in branch territories to focus on small to mid-size customers.

The Company recently expanded its telesales organization to reach customers that cannot be cost-effectively served by the Company's direct sales force or Channel Partners. The benefits of this channel include low fixed and variable costs.

The Company is in the process of evaluating the opportunities of the Internet as an additional channel. This will include expanding web site capabilities to offer its user base a larger range of online ordering and service opportunities.

The Company has three foreign subsidiaries, which market their products and services in Canada, Australia and Europe, while foreign sales in the remainder of the world are conducted through a Foreign Sales Corporation. Foreign revenues were $30,017,000, $28,833,000 and $29,351,000 for the years ended May 31, 2001, 2000 and 1999, respectively. Foreign operating income was $1,946,000, $1,203,000 and $1,550,000 for the years ended May 31, 2001, 2000 and 1999, respectively. Total identifiable assets (excluding cash) and liabilities in foreign countries were $9,610,000 and $3,502,000, respectively, at May 31, 2001 compared with $11,009,000 and $3,184,000 at May 31, 2000. Transaction and exchange losses included in earnings, amounted to approximately $143,000, $142,000 and $89,000 in fiscal 2001, 2000 and 1999, respectively.

Customers

organization are its national coverage, sales control and low variable costs. The benefits of the independent dealers are their speed to market and low fixed cost.

The Company is developing the Internet as an additional channel. This will include expanding web site capabilities to offer its user base a larger range of online ordering and service opportunities.

Customers

The Company focuses on customers that have a high volume of paper-based documents where access to those documents is critical to their business operations. The Company's primary customers include government agencies, healthcare, insurance, financial services and industrial companies. The Company's largest customer is the U.S. Government (including its agencies and GSA subcontractors). No single customer accounted for greater than 10% of consolidated revenues in fiscal 2002, 2001 or 2000. One customer accounted for approximately 10% of the outstanding accounts receivable balance as of May 31, 2002. No single customer accounted for greater than 10% of the outstanding accounts receivable balance as of May 31, 2001.

Backlog

The backlog of orders has historically not been a significant factor in understanding the business of the Company because the order-to-revenue cycle was typically completed within 30 to 60 days from receipt of an order. In recent periods, however, the orders obtained by the Company have included a higher percentage of larger projects with a longer order-to-revenue cycle. Revenue from product sales is generally recognized upon product shipment, except in the case of mobile filing products. Revenue related to mobile filing equipment requiring installation is recognized upon completion of such installation. Professional service projects, some of which include product sales, tend to have a longer order-to-revenue cycle and are typically larger revenue orders. Revenue for professional service projects, isincluding ~~recognized for the~~ product, ~~sales~~is recognized upon ~~delivery and for the services upon~~ completion of the project. The Company's working capital needs have increased as a result of the longer order-to-revenue cycle. The Company is ~~currently~~ continuously attempting to achieve a more favorable mix of orders of varying sizes and types. There can be no assurance that these efforts will be successful.

Intellectual Property

The Company holds several patents and trademarks in the United States, Canada, Europe and Australia. The Company does not consider any of its patents to be material to its business.

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

advantage to the Company. Additionally, competitors of the Company may be able to design around the Company's patents.

Manufacturing

Products are manufactured through the use of in-house production facilities in Mayville and Lomira, Wisconsin, Turlock, California, North York, Ontario, Canada and contractor production facilities. The Company purchases both raw materials and semi-finished products for use in its manufacturing process. The majority of raw materials and semi-finished products are purchased domestically and are considered to be widely available. In September 1999 the Company closed one of its facilities in Turlock, California, which manufactured paper products and transferred the equipment and inventory to its facility in Mayville, Wisconsin.

Subsequent to May 31, 2002, the Company sold the Lomira, Wisconsin facility. The transaction closed on August 16, 2002. Concurrent with the sale, the manufacturing operations that were performed at the Lomira facility were relocated to the Mayville facility.

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

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

Research and Development

The Company's research and development activities are primarily related to the development of new products and services in the document management area and the improvement of existing products in the mobile storage, high-speed mailing, forms handling equipment and furniture areas. Expenditures for research and development were $0.75 million, $0.97 million and $1.0.9 million in fiscal ~~years~~2002, 2001, ~~2000~~ and ~~1999~~2000, respectively.

Employees

At May 31, ~~2001~~2002, the Company employed approximately ~~800~~720 full-time employees. None of the Company's employees is represented by a collective bargaining unit.

Executive Officers

At July 31, ~~2001~~2002 the following individuals were executive officers of the Company:

Name		Age	Title
Gary W. Ampulski		5556	President and Chief Executive Officer
	Mr. Ampulski was appointed President and Chief Executive Officer in January 2001. Mr. Ampulski has served as a director of the Company since December 2000. Previously, he was employed by Moore North America Inc., a manufacturer and distributor of business forms and services, as President from March 2000 to December 2000. He was President of Moore's Business Communication Services Division from January 1993 to March 2000.
	Mr. Ampulski has served as President and Chief Executive Officer since January 2001. Mr. Ampulski has served as a director of the Company since December 2000. Previously, he was President of Moore North America Inc., a manufacturer and distributor of business forms and services, from March 2000 to December 2000. He was President of Moore's Business Communication Services Division from January 1993 to March 2000.
Donald J. Hotz		44	Vice President, Chief Financial Officer and Treasurer
	Mr. Hotz has served as Vice President, Finance since April 2001 and Vice President, Chief Financial Officer and Treasurer since July 1, 2001. Previously, he was employed by Moore North America Inc., a manufacturer and distributor of business forms and services, in the following capacities: Vice President, Finance—Canada from February 2000 to March 2001, Vice President—Enterprise Information Systems Finance from August 1997 to January 2000, Director of Administration & Comptroller—Business Solutions Direct from 1996 to 1997 and Controller—Pressure Sensitive Systems Division from 1993 to 1996.
William Beattie		50	Vice President, International
	Mr. Beattie became Vice President, International, in May 2001. He is also President and General Manager of Tab Products of Canada, Limited, a wholly owned subsidiary of Tab Products Co. since December 1998. Mr. Beattie served as Interim President and Interim Chief Operating Officer from July 2000 to December 2000. Prior to joining Tab, Mr. Beattie was President of Gemplus Canada, a manufacturer of smart-card technology, from February 1996 to November 1998. Mr. Beattie was President of NBS Card Services, a provider of magnetic- stripe, plastic card-based solutions, from August 1993 to December 1995.
Michael J. Nogle		50	Vice President and Chief Information Officer
	Mr. Nogle became Vice President and Chief Information Officer in March 2001. Previously, he was employed by Moore North America Inc., a manufacturer and distributor of business forms and services, as Vice President, Enterprise Information Services from September 2000 to March 2001, Director, Information Systems with Moore's Business Communication Services Division from June 1997 to September 2000 and Manager, Computer Services with Quill Corp., a distributor of office supplies, from March 1994 to March 1997.

Nancy Dellamore		41	Vice President, Marketing
Donald J. Hotz		45	Vice President, Chief Financial Officer and Treasurer
	Ms. Dellamore was appointed Vice President, Marketing for the Company in May 2001. Previously, she served as a Consultant from January 2001 to May 2001, Director of Marketing of Employment Law Learning Technologies, a provider of technology-based training products, from August 1999 to January 2001 and Director of Business Development of OAG Worldwide, a provider of travel information products and services, from May 1995 to August 1999.
	Mr. Hotz has served as Vice President, Chief Financial Officer and Treasurer since July 2001 and was Vice President, Finance from April 2001 to July 2001. Previously, he was employed by Moore North America Inc., a manufacturer and distributor of business forms and services, in the following capacities: Vice President, Finance—Canada from February 2000 to March 2001, Vice President—Enterprise Information Systems Finance from August 1997 to January 2000, Director of Administration & Comptroller—Business Solutions Direct from 1996 to 1997 and Controller—Pressure Sensitive Systems Division from 1993 to 1996.
Thomas J. Rauscher		46	Vice President, Manufacturing and Distribution
William Beattie		51	Vice President, International
	Mr. Beattie became Vice President, International, in May 2001. He is also President and General Manager of Tab Products of Canada, Limited, a wholly owned subsidiary of Tab Products Co. since December 1998. Mr. Beattie served as Interim President and Interim Chief Operating Officer from July 2000 to December 2000. Prior to joining the Company, Mr. Beattie was President of Gemplus Canada, a manufacturer of smart-card technology, from February 1996 to November 1998. Mr. Beattie was President of NBS Card Services, a provider of magnetic-stripe, plastic card-based solutions, from August 1993 to December 1995.
Michael J. Nogle		51	Vice President and Chief Information Officer
	Mr. Nogle has served as Vice President and Chief Information Officer since March 2001. Previously, he was employed by Moore North America Inc., a manufacturer and distributor of business forms and services, as Vice President, Enterprise Information Services from September 2000 to March 2001, Director, Information Systems with Moore's Business Communication Services Division from June 1997 to September 2000 and Manager, Computer Services with Quill Corp., a distributor of office supplies, from March 1994 to March 1997.
Ann E. Herring		45	Vice President, Marketing
	Ms. Herring was appointed Vice President, Marketing of the Company in December 2001. Previously, she was Vice President, Marketing and Business Development for Moore North America Inc., Business Communication Services Division, a manufacturer and distributor of business forms and services, from June 1997 to November 2001 and General Manager, Eastman Kodak Company, Kodak Imaging Services, a manufacturer and distributor of imaging products and services, from January 1993 to June 1997.
Thomas J. Rauscher		47	Vice President, Manufacturing and Distribution
	Mr. Rauscher became Vice President, Manufacturing and Distribution in January 1996. Previously, he was Vice President, Operations at Fisher Hamilton, a distributor of laboratory supply items, from October 1980 to January 1996.
Carter Perez		36	Vice President, U.S. Sales
Carter M. Perez		37	Vice President, U.S. Sales
	Mr. Perez was appointed Vice President, U.S. Sales for the Company in December 2000. Previously, he was Director, Channel Partner Sales from January 1999 to December 2000. He was Sales Operations Manager-Western Entity with Xerox Corporation, a manufacturer and distributor of office equipment and supplies, from June 1997 to December 1998 and Systems Sales Manager with Xerox Corporation from June 1996 to May 1997.
	Mr. Perez was appointed Vice President, U.S. Sales for the Company in December 2000 and was asked to focus more exclusively on the Company's Channel Partner organization beginning in November 2001. Previously, he was Director, Channel Partner Sales from January 1999 to December 2000. He was Sales Operations Manager—Western Entity with Xerox Corporation, a manufacturer and distributor of office equipment and supplies, from June 1997 to December 1998 and Systems Sales Manager with Xerox Corporation from June 1996 to May 1997.
Robert J. Crecca		43	Chief Accounting Officer, Corporate Controller & Asst. Secretary
	Mr. Crecca became Chief Accounting Officer and Controller in March 2001. He added the title of Assistant Secretary in July 2001. Previously, he served in the positions of Director, Operations Analysis & Strategic Planning from August 1996 to March 2001, and Manager, Financial Operations with Moore North America Inc., a manufacturer and distributor of business forms and services, from January 1991 to August 1996.
Caroline A. Damask		38	Assistant Treasurer and Secretary
	Ms. Damask became Assistant Treasurer and Secretary in July 2001 and previously served as Cash Manager from April 2001. She served as Manager, Benefits & HR Accounting with Outboard Marine Corporation, a manufacturer of marine engines and boats, from February 2000 to March 2001. She was employed at Scotsman Industries, Inc., a manufacturer of commercial refrigeration equipment, as Corporate Accounting Manager from April 1997 to January 2000 and Manager, General Accounting & Benefits from April 1995 to March 1997.

~~The executive officers of the Company are elected each year at the Annual Organizational Meeting of the Board of Directors, which will be held this year on October 16, 2001.~~ 8

Robert J. Crecca		45	Chief Accounting Officer, Corporate Controller & Asst. Secretary
	Mr. Crecca has served as Chief Accounting Officer and Controller since March 2001. He added the title of Assistant Secretary in July 2001. Previously, he served in the positions of Director, Operations Analysis & Strategic Planning from August 1996 to March 2001, and Manager, Financial Operations with Moore North America Inc., a manufacturer and distributor of business forms and services, from January 1991 to August 1996.
Caroline A. Damask		39	Assistant Treasurer and Secretary
	Ms. Damask has served as Assistant Treasurer and Secretary since July 2001 and previously served as Cash Manager from April 2001 to July 2001. She served as Manager, Benefits & HR Accounting with Outboard Marine Corporation, a manufacturer of marine engines and boats, from February 2000 to March 2001. She was employed at Scotsman Industries, Inc., a manufacturer of commercial refrigeration equipment, as Corporate Accounting Manager from April 1997 to January 2000 and Manager, General Accounting & Benefits from April 1995 to March 1997.

ITEM 2. PROPERTIES

The Company's corporate headquarters are located at 935 Lakeview Parkway, Suite 195, Vernon Hills, Illinois. The company leases approximately 9,000 square feet of a one-story building. The lease will expire in April 2004.

The Company owns a 356,000 square foot building located on 14 acres of land in Mayville, Wisconsin. The Mayville facility serves as a central warehousing, manufacturing and distribution center. Approximately 200,000 square feet of the facility are used as warehouse space. Approximately 60,000 square feet of the facility are used for the production of paper products (primarily file folders) and the attachment of color-coded labeling systems. Approximately 60,000 square feet are used for the production of panel systems furniture. The Company also owns 16 acres of undeveloped land near the Mayville facility.

8 Prior to August 16, 2002, the Company owned a 45,000 square foot building located on 4 acres of land in Lomira, Wisconsin. The facility was used for the manufacture of TAB-TRAC® mobile filing storage units and other light manufacturing and assembly operations. The Company sold the Lomira facility on August 16, 2002. Concurrent with the sale, the manufacturing operations that were performed at the Lomira facility were relocated to the Mayville facility.

The Company owns a 45,000 square foot building located on 4 acres of land in Lomira, Wisconsin. The facility is used for the manufacture of TAB-TRAC® mobile filing storage units and other light manufacturing and assembly operations.

The Company owns a manufacturing building located on 4.8 acres of land in Turlock, California. The building is 67,000 square feet and is used for the manufacture of the Company's high-speed mailing systems product line and forms handling equipment.

The Company leases ~~office space for its sales branches in numerous cities throughout the United States~~31, ~~Canada, Europe and Australia, most of which are in major metropolitan areas. Tab Products of Canada, Limited leases 58,~~000 square feet of ~~office~~production space in aSan ~~building in North York~~Antonio, ~~Ontario~~Texas, ~~Canada,~~ which expires ~~in May~~April 2005. Tab Products (Europa) B.V. leases a 9,000 square foot building in Amsterdam, Netherlands, which expires in August 2006. Tab Products Pty Ltd leases a 16,000 square foot building in Galdesville NSW, Australia, which expires in May 2006. These buildings serve as general office, sales and warehouse facilities.

The Company leases office space for its sales branches in numerous cities throughout the United States, Canada, Europe and Australia, most of which are in major metropolitan areas. Tab Products of Canada, Limited leases 58,000 square feet of manufacturing and office space in a building in North York, Ontario, Canada, and such lease expires in May 2005. Tab Products (Europa) B.V. leases a 9,000 square foot building in Amsterdam, Netherlands, and such lease expires in August 2006. Tab Products Pty Ltd leases a 16,000 square foot building in Gladesville NSW, Australia, and such lease expires in May 2006. These buildings serve as general office, sales and warehouse facilities.

In management's opinion, all buildings, machinery and equipment are in good condition and are maintained and repaired on a basis consistent with sound operations. The properties and equipment are deemed adequate and suitable for their purposes.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently involved in any material legal proceeding.

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

The Company did not submit any matters to a vote of security holders during the fourth quarter of the fiscal year ended May 31, ~~2001~~2002.

PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's stock is traded on the American Stock Exchange ~~(AMEX)~~ and its trading symbol is TBP. Information with respect to per share common stock dividends paid by the Company and the price ranges per share for each quarter during the fiscal years ended May 31, ~~2001~~2002 and ~~2000~~2001 are set forth below.

~~TAB~~ PER SHARE COMMON STOCK DIVIDENDS AND PRICE RANGES

	Dividends						Price Range Per Share
	DIVIDENDS					PRICE RANGE PER SHARE
	2001			2000			2001						2000
	2002		2001			2002						2001
							High			Low			High			Low
						HIGH			LOW			HIGH			LOW
Fiscal Quarter Ended
August 31	$—	~~.05~~	$	$.05	~~.05~~	$	$4.63	~~4.875~~	$	$3.60	~~2.750~~	$	$4.88	~~8.000~~	$	$2.75	~~5.750~~
November 30	$—	~~.05~~	$	$.05	~~.05~~	$	$4.48	~~4.375~~	$	$3.50	~~2.188~~	$	$4.38	~~7.625~~	$	$2.19	~~5.000~~
February 29/28	$	.00		$	.05		$	3.850		$	1.938		$	7.750		$	5.250
February 28	—			—		$	4.50		$	4.01		$	3.85		$	1.94
May 31	$—	~~.00~~		$—	~~.05~~	$	$6.00	~~4.340~~	$	$3.75	~~3.350~~	$	$4.34	~~6.063~~	$	$3.35	~~3.813~~

At May 31, ~~2001~~2002, the Company had approximately ~~640~~600 holders of record and approximately 3,000 beneficial owners of Tab Products Co. common stock. On March 27, 2001, the Board of Directors discontinued the cash dividend for quarters ending February 28, 2001 and later.

ITEM 6. SELECTED FINANCIAL DATA

TAB PRODUCTS CO. CONSOLIDATED SELECTED FINANCIAL DATA, FIVE YEARS ENDED MAY 31

		(In Thousands of Dollars, Except Per Share and Ratio Data)
		2001			2000			1999			1998			1997
Revenues		$	118,522		$	130,568		$	155,620		$	165,943		$	154,451
Operating (loss) income			(19,271	)		(11,708	)		926			5,229			7,631
Gain on sale of business unit			—			13,794			—			—			—
Gain on sale of property			1,119			12,919			—			—			—
(Loss) earnings before income taxes			(18,366	)		14,846			592			4,590			6,657
Net (loss) earnings			(12,084	)		8,574			162			2,435			3,761
Net (loss) earnings per share
	Basic		(2.34	)		1.67			.03			.48			.77
	Diluted		(2.34	)		1.67			.03			.46			.75
Book value per share			7.78			10.12			8.58			8.69			9.03
Dividends per share			.10			.20			.20			.20			.20
Current assets			46,762			51,258			51,354			53,778			51,405
Working capital			26,379			32,224			26,962			31,785			28,463
Net cash (required) provided by operating activities			(2,916	)		(13,264	)		7,776			7,673			8,167
Purchase of property, plant and equipment, net			1,536			2,865			5,052			4,927			3,309
Depreciation and amortization			9,170			4,006			4,802			7,018			4,001
Long-term debt, non-current			—			—			3,953			7,391			10,828
Stockholders' equity			40,503			52,680			43,128			44,897			44,527
Total assets			62,157			73,293			75,328			77,488			80,699
Current ratio			2.3			2.7			2.1			2.4			2.2
(Loss) return on equity, net of income taxes, before gain on sale of business unit and property			(27	%)		(14	%)		0	%		5	%		9	%
(Loss) return on equity			(26	%)		18	%		0	%		5	%		9	%

ITEM 6. SELECTED FINANCIAL DATA

TAB PRODUCTS CO.

CONSOLIDATED SELECTED FINANCIAL DATA, FIVE YEARS ENDED MAY 31

(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND RATIO DATA)

		2002			2001			2000			1999			1998
Revenues		$	103,947		$	118,522		$	130,568		$	155,620		$	165,943
Operating (loss) earnings			(5,414	)		(19,271	)		(11,708	)		926			5,229
Gain on sale of business unit			—			—			13,794			—			—
Gain on sale of property			—			1,119			12,919			—			—
(Loss) earnings before income taxes			(5,281	)		(18,366	)		14,846			592			4,590
Net (loss) earnings			(3,390	)		(12,084	)		8,574			162			2,435
Net (loss) earnings per share
	Basic		(0.66	)		(2.34	)		1.67			0.03			0.48
	Diluted		(0.66	)		(2.34	)		1.67			0.03			0.46
Book value per share			6.66			7.78			10.12			8.58			8.69
Dividends per share			—			0.10			0.20			0.20			0.20
Current assets			37,353			46,762			51,258			51,354			53,778
Working capital			23,310			26,379			32,224			26,962			31,785
Net cash flows from operating activities			3,732			(2,916	)		(13,264	)		7,776			7,673
Purchase of property, plant and equipment			1,110			1,536			2,865			5,052			4,927
Depreciation and amortization			2,724			9,170			4,006			4,802			7,018
Long-term debt, non-current			—			—			—			3,953			7,391
Stockholders' equity			34,103			40,503			52,680			43,128			44,897
Total assets			50,149			62,157			73,293			75,328			77,488
Current ratio			2.7			2.3			2.7			2.1			2.4
(Loss) return, net of income taxes, before gain on sale of business unit and property, on equity			(9	)%		(27	)%		(14	)%		0	%		5	%
(Loss) return on equity			(9	)%		(26	)%		18	%		0	%		5	%

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

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

Financial Condition

At May 31, ~~2001~~2002, the Company had cash and short-term investments of $811.81 million, aan ~~decrease~~increase of $2.13 million from the $108.98 million at May 31, ~~2000~~2001. The Company's working capital position at May 31, ~~2001~~2002 was $2623.43 million as compared with $3226.24 million at May 31, ~~2000~~2001. The current ratio of 2.37 at May 31, ~~2001~~2002 was ~~lower~~higher than the current ratio of 2.73 reported for May 31, ~~2000~~2001. The ~~decrease~~increase in cash is primarily due to the ~~result~~receipt of ~~the~~a ~~operational~~$4.5 million income ~~losses~~tax refund, ~~the~~a ~~payment~~reduction ofin ~~liabilities~~trade ~~assumed~~receivables of $7.9 million (as a result of ~~the~~lower ~~Docucon~~volume ~~asset~~and ~~acquisition,~~a ~~which~~reduction ~~closed~~in onDays ~~May 25,~~Sales ~~2000~~Outstanding), and ~~the~~a ~~payment~~reduction of ~~commissions~~inventories ~~and~~of ~~compensation~~$0.4 million. ~~accrued~~This inwas ~~the~~partially ~~prior year,~~ offset by ~~proceeds from~~ the ~~sale~~net loss of ~~property~~$3.4 million inand ~~the~~a ~~current~~reduction ~~year.~~of Aaccounts ~~reduction~~payable, incompensation ~~accounts~~payable ~~receivable~~and other accrued liabilities of $63.26 million ~~from~~ , $290.76 million ~~at May 31,~~and ~~2000 to~~ $231.5 million ~~at May 31~~, ~~2001~~respectively. ~~and~~In aaddition, ~~decrease~~the inCompany ~~inventories~~purchased to $51.1 million atin ~~May 31~~property, ~~2001~~plant asand ~~compared~~equipment toduring ~~$6.8 million at May 31, 2000 benefited~~ the ~~change~~year inand ~~the~~made ~~cash~~repurchases ~~position~~of atcommon ~~May 31,~~stock for ~~2001~~$0.5 million. The decrease in working capital is primarily the result of the above-mentioned decrease in accounts receivable and inventory. ~~The Company has increased efforts to reduce both accounts receivable and inventory in order to further reduce working capital requirements.~~

~~During~~ At ~~fiscal~~May 31, ~~2001~~2002, ~~net~~the ~~cash~~Company's ~~required~~pension ~~for~~plan ~~operating~~assets ~~activities~~were ~~was~~ $20.97 million lower than its benefit obligations and, ~~versus~~in ~~net~~accordance ~~cash~~with ~~required~~accounting ~~for~~principles ~~operations~~generally accepted in the United States of America, a non-cash charge of $132.39 million, inafter ~~fiscal~~reflecting ~~2000~~a $1.8 million deferred tax benefit, anwas ~~increase~~taken against stockholders' equity resulting in the ~~cash~~reversal ~~from~~of ~~operations~~the deferred pension asset. The deferred pension asset was recorded in prior years as the result of ~~$10~~contributions made in excess of the net periodic pension cost.~~4 million~~ ~~year~~The ~~over~~reduction ~~year~~of the deferred pension asset did not have an impact on earnings or cash in fiscal 2002.

During fiscal 2001, the Company invested approximately $1.5 million in property, plant and equipment, which primarily represented investments in manufacturing equipment, building improvements, furniture and leasehold improvements for the new corporate office and management information systems. Capital expenditures for fiscal 2002, which will consist primarily of investments in

manufacturing equipment and management information systems, are expected to be approximately $0.8 million.

In fiscal 2000, the Company made $4.1 million in scheduled debt repayments and paid $3.3 million to prepay the remaining portion of debt that had been collateralized at the time of the Field Services Group sale. No debt payments were due or made in fiscal 2001. At May 31, 2001, the Company had no outstanding debt. In the second quarter of fiscal 2001, the Company entered into a new $5 million secured line of credit with a bank. The line of credit contains covenants related to cash flow and tangible net worth that the Company must maintain. The Company was not in compliance with the tangible effective net worth covenant at May 31, 2001. The Company received a waiver of the covenant violation from the bank on August 13, 2001. The Company expects to renegotiate the line of credit agreement with the bank to lower the tangible effective net worth covenant and received a letter from the bank on August 13, 2001 confirming the bank's intention to amend the agreement. The Company does not anticipate the need to utilize the line of credit prior to its expiration on October 31, 2001, and will evaluate whether to renew it in the second quarter of fiscal year 2002.

In fiscal 2000, pursuant to the Agreement for Purchase and Sale of Assets (the "Agreement"), by and between the Company and Bell & Howell Document Management Products Company, a wholly owned subsidiary of Bell & Howell Company ("Bell & Howell"), the Company sold its Field Services Group to Bell & Howell. The Company's Field Service Group consisted of assets that include existing service contracts and certain related tangible and intangible assets and certain liabilities. The price of the Purchased Assets, as defined in the Agreement, consisted of an initial cash payment from Bell & Howell to the Company of $11,200,000, the assumption of liabilities and obligations of the Company valued at an estimated $4,300,000 and up to an additional $3,500,000 payable to the Company subject to certain adjustments for changes in certain accounts attributable to the Field Service Group. The sale was effective as of June 1, 1999. In connection with the sale the Company recorded a pre-tax gain on sale of $13.8 million in the first quarter of fiscal year 2000.

On June 22, 1999, the Company announced the consolidation of its paper manufacturing operations to its main plant located in Mayville, Wisconsin. The Company closed its paper manufacturing facility located in Turlock, California and transferred the inventory and equipment to Mayville. As a result of the consolidation, the Company recorded a pre-tax charge of approximately $435,000 in the first quarter of fiscal year 2000.

In July 1999, the Company authorized the repurchase of up to 300,000 shares of Common Stock from time to time at prevailing market prices. The authorization was effective until July 2000. During fiscal 2000 the Company repurchased 33,100 shares of Common Stock under the repurchase program at a cost of $218,000. The Company has not extended the authorization of the stock repurchase program.

On February 23, 2000, the Company sold its corporate headquarters buildings and the associated land leases at Stanford Research Park to Eagle Ridge Partners, a real estate investment group. The gross sales price was $18 million and resulted in a pre-tax gain of $12.9 million for the Company.

On May 25, 2000, the Company purchased substantially all of the operating assets of Docucon for approximately $5.1 million that was a combination of cash and assumed liabilities. The purchase price was subject to certain post-closing adjustments payable to the Company in the approximate amount of $204,000 that were agreed to as of August 10, 2000. The Docucon purchase gave the Company the capacity to convert customers' documents to digital format for desktop access. On May 31, 2001, the Company wrote-off the remaining goodwill from the acquisition of $3.7 million due to its impairment.

For fiscal years 2001 and 2000, the Company paid cash dividends of $515,000 and $1,032,000, respectively. On March 27, 2001, the Company's Board of Directors discontinued the dividend on the common stock of the Company.

On February 16, 2001, the Company completed the sale of unutilized property and a manufacturing facility located in Turlock, California, for $2.9 million. In connection with the sale, the Company recorded a pre-tax gain on sale of $1.1 million in the third quarter of fiscal year 2001.

During ~~The Company's cash flow in the fourth quarter of~~ fiscal ~~2001~~2002, ~~was~~net ~~negatively~~cash ~~impacted~~provided by ~~the~~operating ~~relocation~~activities ofwas ~~the~~$3.7 million, ~~corporate~~versus ~~office~~net ~~from~~cash ~~San~~used ~~Jose,~~in CAoperations toof ~~Vernon Hills, IL~~$2.9 million Inin ~~the~~fiscal ~~quarter~~2001, ~~payments~~ ~~were~~an ~~made~~increase ~~to employees~~in ~~for~~cash ~~severance~~from operations ~~and~~of ~~to vendors for moving costs~~$6.6 million ~~The~~year ~~Company~~over ~~also had duplicate salary expense incurred during training of new employees~~year.

~~The~~ During ~~Company~~fiscal ~~accelerated~~2002, the ~~filing~~Company ofinvested ~~its~~approximately ~~tax~~$1.1 million ~~return~~in property, plant and equipment, which primarily represented investments in manufacturing production equipment, web order entry and management information systems, imaging production equipment and furniture and fixtures. Capital expenditures for fiscal ~~2001~~2003, which will consist primarily of investments in ~~order~~manufacturing equipment, a new paint line to ~~expedite~~be ainstalled ~~refund~~at ofthe ~~prior~~Mayville, ~~year~~Wisconsin ~~taxes~~facility due to ~~operating~~the ~~loss~~sale ~~carry-backs.~~of ~~The~~the ~~Company~~Lomira, ~~received~~Wisconsin afacility ~~refund~~and management information systems, are ofexpected to be approximately $41.5 million ~~in July 2001~~.

~~The~~ No debt payments were due or made in fiscal 2002 or 2001. At May 31, 2002 and 2001, the Company ~~believes~~had ~~that~~no ~~its~~outstanding ~~current~~debt. ~~cash~~In the second quarter of fiscal 2002, ~~future~~the Company renewed a $5 million secured line of credit with a bank. The line of credit contains covenants related to cash ~~flows~~flow and ~~potential~~tangible ~~borrowing~~net ~~capacity~~worth that the Company must maintain. The Company was in compliance with all covenants at May 31, 2002. The Company does not anticipate the need to utilize the line of credit prior to its expiration on October 31, 2002, and will ~~provide~~evaluate ~~sufficient~~whether ~~working~~to ~~capital~~renew ~~for~~it in the ~~next~~second ~~twelve~~quarter ~~months~~of fiscal 2003.

~~Results~~ The Company Ofand ~~Operations~~ its subsidiaries are obligated under leases for real and personal property expiring at various dates through 2007. The future minimum rental payments under these lease agreements at May 31, 2002 are $2.8 million, $2.2 million, $1.3 million, $0.5 million and $26,000 for fiscal 2003, 2004, 2005, 2006, and 2007, respectively.

~~Total~~ In fiscal ~~Revenues—Total~~2000, ~~revenues~~pursuant ~~for~~to ~~fiscal~~the ~~2001~~Agreement offor ~~$118.5 million~~Purchase ~~were~~and ~~$12.1 million~~Sale ~~or 9.3%~~of ~~lower~~Assets ~~than~~ (the ~~$130.6 million~~"Agreement"), inby ~~fiscal~~and ~~2000.~~between Of the ~~$12.1 million~~Company ~~decrease~~and inBell & ~~fiscal~~Howell ~~2001~~Document ~~revenues~~Management asProducts ~~compared to the prior year~~Company, ~~$17.3 million was due to~~ a wholly ~~decline~~owned insubsidiary ~~U.S. sales~~ of ~~manufactured~~Bell & ~~furniture~~Howell ~~and~~Company ~~equipment~~("Bell & ~~products~~Howell"), ~~professional~~the ~~services~~Company ~~and~~sold ~~technology~~its ~~products.~~Field ~~This~~Services ~~decline~~Group ~~was partially due~~ to aBell & ~~carry~~Howell. ~~over~~The ~~effect~~Company's ofField ~~contract~~Service ~~negotiations~~Group ~~begun~~consisted ~~in 1999 with~~of ~~the~~assets ~~independent~~that ~~channel~~include ~~partners.~~existing Inservice ~~addition,~~contracts ~~sales~~and ~~decreased~~certain inrelated ~~fiscal~~tangible ~~2001~~and ~~due~~intangible toassets ~~sales headcount reductions~~ and ~~sales~~certain ~~management turnover~~liabilities. ~~This~~The ~~was~~price ~~partially offset by $2.8 million~~ of ~~sales in~~ the ~~Company's~~Purchased ~~imaging~~Assets, ~~subsidiary~~as ~~that~~defined ~~was acquired~~ in ~~May 2000~~the Agreement, aconsisted ~~$1.1 million~~of an ~~sales~~initial ~~growth~~cash inpayment ~~manufactured~~from ~~supplies and a $1.3~~Bell ~~million~~& ~~increase~~Howell into ~~sales of~~ the Company~~'s international~~ ~~operations. Revenues in fiscal 2000~~ of $~~130~~11.62 million, ~~were~~the ~~$25.0 million~~assumption orof ~~16.1%~~liabilities ~~lower~~and ~~than~~obligations of the ~~$155.6 million~~Company invalued ~~fiscal~~at ~~1999.~~an Ofestimated ~~the~~ $254.03 million ~~decrease in~~and ~~fiscal 2000 revenues as compared~~ up to ~~prior~~an ~~year,~~additional $153.05 million ~~was~~payable ~~due~~ to the ~~sale~~Company ofsubject ~~the~~to ~~Field~~certain ~~Services~~adjustments ~~group.~~for ~~The~~changes ~~balance~~in ~~was~~certain ~~primarily~~accounts ~~due~~attributable to athe ~~decline~~Field inService UGroup.S. ~~sales of manufactured products only partially offset by increased revenue for professional services, imaging and technology products.~~ The ~~Company's~~sale ~~international~~was ~~operations~~effective ~~also~~as ~~experienced decreased revenues~~ of ~~$3.3~~June ~~million~~1, as1999. aIn ~~result~~connection ofwith ~~changes~~the insale ~~distribution~~the inCompany ~~the~~recorded ~~European~~a ~~operations~~pre-tax ~~partially~~gain ~~offset~~on bysale aof $113.48 million ~~increase~~ in the ~~revenues~~first ofquarter ~~TAB Canada. International revenues were 25%, 22% and 19%~~ of ~~consolidated revenues in~~ fiscal ~~2001,~~ 2000 ~~and 1999, respectively~~.

~~Cost Of Revenues—Cost of revenues~~ On June 22, ~~as a percentage of revenues, for fiscal 2001, 2000 and~~ 1999 ~~was 62.8%~~, ~~61.7%~~the ~~and~~Company ~~61.6%, respectively.~~announced ~~The increase in~~ the ~~percentage~~consolidation ~~for~~of ~~fiscal~~its ~~2001~~paper asmanufacturing ~~compared~~operations to ~~fiscal~~its ~~2000~~main ~~was~~plant ~~due~~located ~~primarily to a decrease~~ in ~~manufacturing~~Mayville, ~~efficiencies~~Wisconsin. ~~due~~The toCompany ~~lower~~closed ~~than~~its ~~planned volume, offset by~~paper ~~reversal~~manufacturing offacility ~~certain~~located ~~accruals~~in ~~previously~~Turlock, ~~recorded~~California ~~related~~and totransferred the ~~Company's~~inventory ~~Professional~~and ~~Services~~equipment ~~cost~~to ~~of sales~~Mayville. ~~The~~As ~~reversal of these accruals was based on~~ a ~~review~~result of the ~~Company's~~consolidation, ~~accrued~~the ~~services liabilities~~Company ~~which~~recorded ~~were~~a ~~determined~~pre-tax tocharge beof approximately ~~greater than which was required~~$0.4 million ~~The increase~~ in the ~~percentage~~first ~~for~~quarter ~~fiscal~~of ~~2000 as compared to~~ fiscal ~~1999 was due primarily to a decrease in manufacturing efficiencies due to lower than planned volume~~2000.

~~Operating Expenses (Selling~~ On February 23, ~~General and Administrative and Research and Development)—Operating expenses~~2000, asthe aCompany ~~percentage of~~sold ~~revenues,~~its ~~for~~corporate ~~fiscal~~headquarters ~~2001,~~buildings ~~2000~~ and ~~1999~~the ~~were~~associated ~~53.5%,~~land ~~47.2%~~leases ~~and~~at ~~37.8%,~~Stanford ~~respectively.~~Research ~~Total~~Park ~~operating~~to ~~expenses~~Eagle ~~for~~Ridge ~~fiscal 2001 were $63.4 million~~Partners, ana ~~increase~~real ofestate investment $1group.~~7 million~~ ~~as compared~~The togross ~~total~~sales ~~operating~~price ~~expenses~~was of $~~61.7~~18 million inand ~~fiscal~~resulted ~~2000. The increase~~ in ~~operating expenses was primarily attributable to~~ a ~~write~~pre-~~off~~tax ofgain ~~the goodwill for the Company's imaging services subsidiary, establishment~~ of a$12.9 million ~~reserve~~ for ~~closing of branch offices, costs associated with~~ the ~~corporate headquarters relocation, and payment related to the retirement of the former CEO~~Company.

~~Operating~~ On ~~expenses~~May 25, ~~for~~2000, ~~fiscal~~the ~~2000~~Company purchased substantially all of the operating assets of Docucon for approximately $615.71 million ~~represented~~that anwas ~~increase~~a combination of $2cash and assumed liabilities.~~9 million~~ asThe ~~compared~~purchase price was subject to ~~total~~certain ~~operating~~post-closing ~~expenses~~adjustments payable to the Company in the approximate amount of $580.82 million inthat ~~fiscal~~were agreed to as of ~~1999~~August 10, 2000. The ~~increase~~Docucon inpurchase ~~operating~~gave ~~expenses~~the ~~was~~Company ~~primarily~~the ~~attributable~~capacity to ~~increased~~convert ~~sales~~customers' ~~salaries~~documents ~~and~~to ~~bonuses,~~digital ~~recruiting~~format ~~costs,~~for ~~information~~desktop ~~systems~~access. ~~consulting~~On ~~costs~~May 31, ~~and~~2001, ~~increased~~the ~~rent expense due to~~Company wrote-off the ~~new~~remaining ~~leased~~goodwill ~~corporate~~from ~~offices~~the ~~offset~~acquisition ~~partially~~of by$3.7 million ~~reduced~~due ~~branch~~to ~~operating~~its ~~costs and temporary employee costs~~impairment.

The ~~Gain~~Company ondid ~~Sale—Gain~~not onpay ~~Sale~~any ofcash ~~Property~~dividends inon ~~fiscal~~its ~~year~~common ~~2001~~stock ~~was $1.1 million as compared to $12.9 million~~ in fiscal ~~year 2000~~2002. OnIn ~~February 16,~~fiscal 2001, the Company ~~completed~~paid ~~the~~cash ~~sale~~dividends of ~~unutilized property and a manufacturing facility for a gross sales price of~~ $20.95 million. On ~~February~~March 2327, ~~2000~~ 2001, the Company's ~~sold~~Board ~~its~~of ~~corporate~~Directors ~~headquarters~~discontinued ~~buildings and~~ the ~~associated~~dividend ~~land~~on ~~leases~~the ~~for~~common astock ~~gross sales price~~ of ~~$18 million. In fiscal 2000,~~ the Company ~~also reported a gain on sale of $13~~.~~8 million~~ ~~related to the sale of its Field Services Group for a gross sales price of $19 million.~~

~~Interest~~ On February 16, ~~Expense—Interest expense~~2001, ~~net~~the ~~for~~Company ~~fiscal~~completed ~~2001,~~the ~~2000~~sale of unutilized property and ~~1999~~a ~~was~~manufacturing ~~$0.2 million~~facility located in Turlock, ~~$0.2 million~~California, ~~and~~ for $02.39 million~~, respectively~~. ~~The~~In ~~decrease~~connection with inthe ~~interest~~sale, ~~expense~~the ~~was~~Company ~~primarily~~recorded ~~because~~a ofpre-tax ~~decreased~~gain ~~levels~~on sale of ~~long-term~~$1.1 million ~~debt~~in ~~due~~the tothird ~~scheduled~~quarter ~~and~~of ~~unscheduled~~fiscal ~~debt repayments~~2001.

~~Income Taxes—Income taxes~~ In September 2001, asthe aCompany's ~~percentage~~Board of ~~pre-tax~~Directors ~~(loss)~~authorized ~~earnings,~~the ~~for~~repurchase ~~fiscal~~of ~~2001~~up ~~was~~to ~~(36.0~~10%), ~~a decrease~~ of ~~78.2 percentage points as compared to~~ the ~~effective~~issued ~~tax~~and ~~rate~~outstanding shares of ~~42.2% in fiscal 2000. The decrease in~~ the ~~effective~~Company's ~~tax~~common ~~rate~~stock ~~was~~from ~~primarily~~time ~~due~~ to ~~the~~time ~~current~~at prevailing ~~year~~market ~~operating~~prices. ~~loss~~During ~~and~~fiscal ~~a limitation~~2002, onthe ~~loss~~Company ~~carrybacks~~repurchased by112,500 ~~certain~~shares ~~states.~~of ~~For~~its ~~fiscal~~common ~~2000,~~stock ~~income~~for ~~taxes decreased 30~~$0.45 ~~percentage~~million ~~points~~between asSeptember 2001 ~~compared~~and toJanuary 2002. ~~the~~The ~~effective~~Company ~~tax~~did not ~~rate~~repurchase ofany ~~72.6%~~shares inafter ~~fiscal~~January 17, ~~1999~~2002. The ~~decrease~~stock ~~in the~~repurchase ~~effective~~program ~~tax~~will ~~rate~~expire ~~was~~on ~~primarily~~September 16, ~~due to non-deductible goodwill~~2002.

~~Recently~~ On March 9, ~~Issued~~2002, ~~Accounting~~President ~~Standards~~ Bush signed into law H.R. 3090, the "Job Creation and Worker Assistance Act of 2002." The Act allows for additional federal depreciation expense for specific asset acquisitions purchased by the Company after September 10, 2001. Additionally, the Act increases the carryback period of federal net operating losses generated in tax years ending in 2001 and 2002 from two years to five years. The Company previously filed a claim to carryback the losses generated in the fiscal year ended May 31, 2001 to the two previous tax years and received a refund of $4.5 million during fiscal 2002. As a result of the Act, the Company has elected to amend the originally filed claim to carryback the losses generated in fiscal 2001 to the five previous tax years. The Company has also elected to carryback the losses generated in the fiscal year ended May 31, 2002 to the five previous years. The refund from both carryback claims is reported in the income tax receivable balance.

In The Company ~~June 1998,~~believes ~~the~~that ~~Financial~~its ~~Accounting~~current ~~Standards Board issued Statement of Financial Accounting Standard No. 133 ("SFAS No. 133")~~cash, ~~Accounting~~ ~~for~~future ~~Derivative~~cash ~~Instruments~~flows and ~~Hedging~~potential ~~Activities.~~borrowing ~~This~~capacity ~~statement~~will ~~requires~~provide ~~companies~~sufficient toworking ~~record~~capital ~~derivatives~~for ~~on the balance sheet as assets or liabilities, measured~~ at ~~fair~~least ~~value. Gains or losses resulting from changes in~~ the ~~values~~next oftwelve ~~those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting~~months. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on its financial position, results of operations or cash flows. The Company will adopt SFAS No. 133 on June 1, 2001.

~~In December 1999,~~Results ~~the~~Of Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 ("SAB No.101"), Revenue Recognition in Financial Statements, which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC and was effective the first fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 requires companies to report any changes in revenue recognition as a cumulative change in accounting principal at the time of implementation in accordance with Accounting Principles Board Opinion 20, Accounting Changes. Subsequently, SAB No. 101A and 101B were issued to delay the implementation of SAB No. 101. Operations

~~After evaluation~~ Revenues—Total ofrevenues ~~the~~for ~~Company's~~fiscal ~~revenue~~2002 ~~recognition~~of ~~policies~~$103.9 million ~~compared~~were to$14.6 million or 12.3% lower than the ~~guidance~~$118.5 million in ~~SAB~~fiscal No2001. Of the $14.6 ~~101~~million decrease in revenues, ~~the~~$9.9 million ~~Company~~was ~~has~~due ~~changed~~to ~~its~~a ~~accounting~~decline ~~policy~~in ~~for~~U.S. ~~revenue~~sales ~~from~~of manufactured mobile ~~file~~ ~~storage~~and equipment products, professional services and supplies. ~~Adoption~~This decline was due to reduced volume and longer customer decision lead times largely as a result of the ~~change~~economic indownturn ~~accounting,~~that inimpacted the ~~third~~Company ~~quarter~~in the latter part of fiscal ~~year~~2002 ~~2001~~and the uncertainty regarding the future ownership of the Company. In addition, ~~resulted~~the inCompany experienced revenue ~~being~~declines ~~recorded~~in ~~only~~Canada ~~after~~of ~~installation~~$2.8 million as a result of cutbacks ~~the~~by ~~equipment~~customers onin ~~customer~~technology ~~premises rather~~spending ~~than~~and ~~upon~~world ~~shipment,~~economic ~~thus~~events. ~~postponing~~Europe ~~revenue~~and ~~recognition~~Australia byrevenues andeclined ~~average~~$1.2 million and $0.6 million, respectively. Revenues in fiscal 2001 of $118.5 million ~~two~~were ~~months~~$12.1 million ~~The~~or ~~change~~9.3% lower than the $130.6 million in ~~accounting~~fiscal ~~necessitated~~2000. Of the ~~restatement~~$12.1 million decrease in fiscal 2001 revenues, $17.3 million was due to a decline in U.S. sales of ~~the~~manufactured ~~first~~furniture and ~~second~~equipment ~~quarter~~products, ~~10Q~~professional ~~filings~~services ~~to properly~~and ~~reflect~~technology ~~the~~products. ~~beginning~~This decline was partially offset by $2.8 million in sales of the Company's ~~year~~imaging subsidiary ~~recording~~that was acquired in May 2000, increased sales of ~~the~~manufactured ~~cumulative~~supplies ~~effect~~of on$1.1 million ~~prior~~and ~~years~~increased ~~(to~~sales ~~May~~from the Company's international operations of $1.3 31million. International revenues were 24%, ~~2000)~~25% and 22% of aconsolidated ~~change~~revenues in ~~accounting~~fiscal ~~principle~~2002, 2001 and 2000, respectively.

~~In June 2001,~~ Cost ~~the~~of ~~Financial~~Revenues—Cost ~~Accounting~~of ~~Standards~~revenues, ~~Board~~as ~~issued~~a ~~Statement~~percentage of ~~Financial~~revenues, ~~Accounting~~for ~~Standard~~fiscal ~~No. 142 ("SFAS No. 142")~~2002, ~~Goodwill~~2001 and ~~Other~~2000 ~~Intangible Assets~~were 62.2%, ~~SFAS 142~~62.8% ~~addresses the initial recognition~~ and ~~measurement~~61.7%, respectively. ofThe ~~intangible~~improvement ~~assets~~in ~~acquired~~the ~~outside~~percentage ofin afiscal ~~business~~2002, ~~combination~~despite ~~and~~ the ~~accounting~~revenue decline, for ~~goodwill~~fiscal ~~and~~2002 ~~other~~as ~~intangible~~compared ~~assets subsequent~~ to ~~their~~fiscal ~~acquisition.~~2001 ~~SFAS~~was ~~No. 142~~due ~~provides~~primarily ~~that~~to ~~intangible~~a ~~assets~~price ~~with~~increase ~~finite~~implemented ~~useful~~early ~~lives~~in fiscal be2002 ~~amortized~~on ~~and~~manufactured ~~that~~equipment ~~goodwill~~ and ~~intangible~~supplies ~~assets~~and ~~with~~cost ~~indefinite~~reduction ~~lives~~programs ~~will~~implemented ~~not~~throughout ~~be amortized,~~the ~~but~~year. ~~will~~The ~~rather~~Company bealso ~~tested~~saw atimprovements ~~least~~in ~~annually~~product ~~for~~mix ~~impairment.~~toward ~~The~~higher ~~Company~~margin ~~will~~products ~~adopt~~such ~~SFAS No~~as supplies. ~~142~~ noIn ~~later than June 1~~addition, ~~2002.~~there ~~Upon~~were ~~adoption~~significant ofimprovements ~~SFAS~~in ~~No. 142,~~ the ~~Company will~~cost ~~stop~~structure ~~the amortization~~ of ~~goodwill~~the ~~that~~Company's ~~resulted~~imaging ~~from~~services ~~business~~operation ~~combinations~~which ~~initiated~~went ~~prior~~from toa ~~the~~negative ~~adoption of SFAS No~~23. ~~141,~~6% ~~Business~~gross ~~Combinations.~~margin ~~The~~to ~~Company~~a

~~will~~negative ~~evaluate~~1.5% ~~goodwill~~gross ~~under~~margin ~~the~~due ~~SFAS~~to Nocost reductions. ~~142~~ ~~transitional~~The ~~impairment~~increase ~~test~~in ~~and~~the ~~has~~percentage ~~not~~in ~~yet~~fiscal ~~determined~~2001 ~~whether~~from orfiscal ~~not~~2000 ~~there~~was isdue anprimarily ~~impairment~~to ~~loss.~~a ~~Any~~decrease ~~transitional~~in ~~impairment~~manufacturing ~~loss~~efficiencies ~~will~~due ~~be recognized~~to aslower athan planned ~~change in accounting principle~~volume.

~~Business~~ Selling, ~~Environment~~General and ~~Risk~~Administrative ~~Factors~~ Expense—Selling, general and administrative expenses, as a percentage of revenues, for fiscal 2002, 2001 and 2000 were 43.0%, 53.5% and 47.2%, respectively. Total operating expenses for fiscal 2002 were $44.7 million, a decrease of $18.6 million as compared to total operating expenses of $63.4 million in fiscal 2001. The decrease in operating expenses was primarily attributable to lower salaries, wages and benefits due to lower headcount, lower costs associated with the relocation of the corporate headquarters in the prior year and lower amortization costs due to the write-off in the prior year of the goodwill associated with the imaging services operation. The improvement was also due to the avoidance of the prior year costs mentioned in the following paragraph.

~~The~~ Operating expenses ~~Company's~~for ~~future~~fiscal ~~operating~~2001 ~~results~~of ~~may~~$63.4 million berepresented ~~affected~~an byincrease ~~various~~of ~~trends~~$1.7 million ~~and~~as ~~factors,~~compared ~~which~~to wetotal ~~must~~operating ~~successfully~~expenses ~~manage~~of $61.7 million in ~~order~~fiscal to2000. The ~~achieve~~increase ~~favorable~~in operating ~~results.~~ Inexpenses ~~addition,~~was ~~there~~primarily ~~are~~attributable ~~trends~~to ~~and~~a ~~factors~~write-off ~~beyond~~of ~~our~~the ~~control,~~$3.7 million ~~which~~of ~~may~~goodwill ~~affect~~for ~~our~~the ~~operations.~~Company's ~~Such~~imaging ~~trends~~services ~~and~~operation, ~~factors~~establishment ~~include,~~of ~~but~~a $0.4 million ~~are~~reserve ~~not~~for ~~limited~~closing toof branch offices, ~~possible~~$2.2 million ~~adverse~~of ~~changes~~costs inassociated ~~general economic~~with ~~conditions~~the orcorporate ~~conditions~~headquarters inrelocation, ~~the~~and ~~specific~~a ~~markets~~$1.4 million ~~for~~payment ~~our~~related ~~products,~~to ~~governmental~~the retirement ~~regulation,~~of ~~fluctuations~~the informer ~~foreign~~CEO. ~~exchange~~These ~~rates,~~increases ~~and~~were ~~other~~partially ~~factors,~~offset ~~including,~~by ~~but~~lower ~~not~~salaries ~~limited~~and ~~to,~~lower ~~those listed~~commissions ~~below~~on the reduced revenues.

An Gain ~~accelerated~~on ~~move~~Sale—Gain toon ~~digital~~sale ~~technology~~of byproperty ~~our~~in ~~customers~~fiscal ~~could~~2001 ~~weaken~~was ~~demand~~$1.1 million ~~for~~as ~~our~~compared ~~products~~to ~~and~~$12.9 million ~~services~~in fiscal 2000. ~~Although~~On ~~the~~February 16, ~~use~~2001 ofthe ~~paper by~~Company ~~business~~completed ~~has~~the ~~continued~~sale toof ~~increase,~~unutilized ~~the~~property ~~use~~and ofa ~~digital~~manufacturing ~~records~~facility byfor ~~large~~a ~~document~~gross ~~intensive~~sales ~~industries~~price ~~may~~of ~~accelerate~~$2.9 million. ~~This~~On ~~could~~February 23, ~~weaken~~2000, the Company ~~demand~~sold ~~for~~its ~~our~~corporate ~~paper-based~~headquarters ~~supplies~~buildings and ~~storage~~the ~~products. If~~associated weland ~~fail~~leases tofor ~~respond~~a ~~with~~gross ~~new~~sales ~~digital~~price ~~products~~of ~~and~~$18 million. ~~services~~In tofiscal ~~such~~2000, the Company also reported a ~~potential~~gain ~~market~~on ~~change,~~sale ~~our~~of $13.8 million ~~revenues,~~related ~~results~~to the sale of ~~operations,~~its ~~financial~~Field ~~condition~~Services ~~and~~Group ~~prospects~~for ~~could~~a begross ~~adversely~~sales ~~affected~~price of $19 million.

We Interest ~~may~~and ~~not~~Other, benet—Interest ~~able~~and toother, ~~achieve~~net ~~higher~~was ~~market~~$0.1 million ~~penetration~~income for ~~sales~~fiscal of2002 ~~large~~and ~~document management solution projects~~$0.2 million ~~Although~~expense for ~~from~~both fiscal 2001 ~~onward~~and wefiscal ~~have~~2000. ~~focused~~Gross ~~our~~interest ~~selling~~income ~~efforts~~was on$0.3 million, ~~obtaining~~$0.5 million aand $1.0 million ~~balanced~~for ~~mix~~fiscal of2002, ~~orders~~2001 ~~of varying sizes~~ and ~~types~~2000, ~~large~~respectively. ~~projects~~The ~~may~~decrease bein ~~important~~interest toincome ~~achieving~~was ~~revenue~~primarily ~~growth.~~due ~~While~~to ~~there~~lower isinterest norates ~~known large~~on ~~competitor~~the ~~with~~Company's ~~these~~cash ~~capabilities~~balances. ~~today,~~Interest ifexpense wewas $0.5 million ~~fail~~for tofiscal ~~achieve~~2000. ~~significant~~The ~~market~~remaining ~~penetration~~expense for ~~such~~each ~~projects,~~fiscal ~~revenue~~year ~~growth~~included ~~may~~foreign becurrency ~~limited~~transaction and ~~our~~exchange ~~results~~gains ofand ~~operations~~losses ~~may~~and beother ~~adversely impacted~~miscellaneous expenses.

If Income weTaxes—Income ~~cannot~~tax ~~attract~~benefit, ~~and~~as ~~retain~~a ~~key~~percentage ~~qualified~~of ~~personnel~~pre-tax loss, ~~our~~for ~~business~~fiscal ~~and~~2002 ~~results~~was of35.8%, ~~operations~~an ~~may~~improvement beof 0.2 percentage ~~adversely~~points ~~impacted.~~as ~~Our~~compared ~~future performance~~to ~~depends~~the ineffective ~~significant~~tax ~~part~~rate ~~upon~~of ~~attracting~~36.0% ~~and~~in ~~retaining~~fiscal ~~key~~2001. ~~management,~~For ~~sales,~~fiscal ~~manufacturing~~2000, ~~marketing~~income ~~and~~tax ~~technical~~expense ~~support~~was ~~personnel.~~an ~~The~~effective ~~inability~~tax torate ~~attract,~~of ~~assimilate~~42.2%. orThe ~~retain highly~~change ~~qualified personnel~~ in the ~~future~~effective ontax arate was ~~timely~~primarily ~~basis~~due ~~could have~~ a ~~material~~limitation ~~adverse effect~~ on ~~our~~loss ~~business,~~carrybacks ~~results~~by ofcertain ~~operations and financial condition~~states.

WeRecently ~~may~~Issued ~~experience~~Accounting adverse effects as a result of the ongoing proxy contest being pursued by Thaddeus Jaroszewicz. A pending attempt by Thaddeus Jaroszewicz to elect five directors to the Tab Board of Directors at the 2001 Annual Meeting creates uncertainty over the future management and direction of the Company, including the extent to which Tab will maintain its commitment to management's plan to improve financial and operating performance. The pending contest may distract management from attention to the execution of the plan and the uncertainty resulting from the contest could have an adverse impact on employee retention and distribution, supplier and customer relationships. Pronouncements

~~Our~~ In ~~operating~~June 1998, ~~results~~the ~~may~~Financial ~~fluctuate~~Accounting ~~from~~Standards ~~period~~Board to("FASB") ~~period.~~issued ~~Factors~~Statement ~~affecting~~of ~~our~~Financial ~~operating~~Accounting ~~results~~Standard ~~and~~("SFAS") ~~gross~~No. 133, ~~margins~~"Accounting ~~include the volume~~for ofDerivative ~~product~~Instruments ~~sales,~~and ~~competitive~~Hedging ~~pricing pressures~~Activities", ~~the~~as ~~ability~~amended toby ~~match~~SFAS ~~supply with demand~~No. 137, ~~changes~~"Accounting infor ~~product~~Derivative Instruments and ~~customer~~Hedging ~~mix,~~Activities—Deferral ~~market acceptance~~ of ~~new~~the orEffective ~~enhanced~~Date ~~versions~~ of ~~our products and~~SFAS ~~services~~No. 133," ~~changes~~and inSFAS ~~the~~No. 138, ~~channels~~"Accounting ~~through~~for ~~which~~Certain ~~our~~Derivative ~~products~~Instruments and ~~services~~Certain ~~are~~Hedging ~~distributed,~~Activities." ~~changes~~This instatement ~~our~~requires ~~product~~companies ~~mix,~~to ~~timing~~record ofderivatives ~~new~~on ~~product~~the ~~announcements~~balance ~~and introductions by us and our competitors,~~sheet ~~fluctuations~~as inassets ~~product~~or ~~costs~~liabilities, ~~variations~~measured inat ~~manufacturing~~fair ~~cycle~~value. ~~times,~~Gains ~~fluctuations~~or inlosses ~~manufacturing~~resulting ~~utilization,~~from ~~our~~changes ~~ability~~in tothe ~~achieve~~values ~~manufacturing~~of ~~volumes~~those ~~with~~derivatives ~~our~~would ~~new~~be ~~and~~accounted ~~existing~~for ~~products, increased~~depending ~~research~~on ~~and~~the ~~development~~use ~~expenses,~~of ~~exchange~~the ~~rate~~derivative ~~fluctuations,~~and awhether ~~change~~it qualifies infor ~~our~~hedge ~~effective~~accounting. ~~tax~~The ~~rate~~Company ~~and~~adopted ~~changes~~SFAS inNo. 133 ~~general~~on ~~economic~~June 1, ~~conditions~~2001. ~~All~~The adoption of ~~these~~SFAS ~~factors~~No. 133 ~~are~~did ~~difficult~~not tohave ~~forecast and~~a ~~these~~material orimpact ~~other~~on ~~factors~~the ~~can~~Company's ~~materially~~financial ~~affect~~position, results ~~our~~of ~~quarterly~~operations or ~~annual~~cash ~~operating results~~flows.

Our liquidity could be adversely impacted by unexpected events. Although we believe that we have sufficient cash on hand and cash from operations to satisfy our working capital needs for the next 12 months, any significant unexpected cash requirements could adversely impact our liquidity. In those

In ~~circumstances~~December 1999, wethe ~~would~~Securities ~~be required to seek third party financing~~ and weExchange ~~cannot~~Commission be("SEC") ~~certain~~issued ~~that~~Staff ~~financing~~Accounting ~~will~~Bulletin be("SAB") ~~available on acceptable terms or at all~~No. 101, ~~Factors~~"Revenue ~~affecting~~Recognition ~~our~~in ~~cash~~Financial ~~flows~~Statements", ~~include net~~which ~~income~~provides orguidance ~~losses,~~related ~~the~~to ~~timely~~revenue ~~collection~~recognition ofbased ~~accounts~~on ~~receivable~~interpretations ~~from~~and ~~customers,~~practices ~~the~~followed ~~willingness~~by ofthe ~~suppliers~~SEC toand ~~extend~~was ~~normal~~effective ~~credit terms,~~ the ~~purchase~~first ~~and~~fiscal ~~sale~~quarter of ~~assets,~~fiscal ~~the~~years ~~willingness~~beginning ~~of financial~~after ~~institutions to lend to us~~December 15, ~~and~~1999. ~~the~~SAB ~~payment of dividends~~No. 101 ~~Although~~requires ~~our~~companies ~~projections~~to ofreport ~~these~~any ~~factors~~changes ~~indicate~~in ~~that~~revenue ~~our~~recognition ~~operational~~as ~~cash~~a ~~flows,~~cumulative ~~together~~change ~~with~~in ~~our~~accounting ~~existing~~principle ~~cash~~at ~~and~~the ~~cash~~time ~~equivalent balances~~of ~~and~~implementation ~~our~~in ~~borrowing~~accordance with ~~capacity~~Accounting ~~will~~Principles ~~adequately~~Board ~~finance~~("APB") ~~anticipated~~Opinion ~~operations~~No. 20, ~~and~~"Accounting ~~capital~~Changes." ~~expenditures~~Subsequently, ~~for~~SAB ~~the~~Nos. ~~foreseeable~~101A ~~future,~~and ~~investors~~101B ~~are~~were ~~cautioned~~issued ~~that~~to ~~such~~delay ~~projections~~the ~~inherently~~implementation ~~involve risks~~of ~~and~~SAB ~~uncertainties~~No. 101.

~~Our~~ After evaluation ~~inability~~of the Company's revenue recognition policies compared to ~~compete~~the ~~effectively~~guidance ~~could~~in ~~have~~SAB aNo. 101, ~~material~~the ~~adverse~~Company ~~impact~~changed onits ~~our~~accounting ~~results~~policy offor ~~operations.~~revenue ~~Competition~~from ~~may~~mobile ~~increase~~file storage inequipment. Adoption of the ~~future~~ ~~from~~change ~~existing~~in ~~competitors~~accounting ~~and/or~~in ~~from~~fiscal ~~other~~2001 ~~companies~~resulted ~~offering~~in ~~products~~revenue ~~and~~being ~~services~~recorded ~~that~~only ~~may~~after beinstallation ~~less~~of ~~costly~~the orequipment ~~provide~~on ~~additional~~customer ~~features.~~premises ~~Unless~~rather wethan ~~respond~~upon ~~effectively~~shipment, ~~such competition~~thus ~~could~~postponing ~~result~~revenue inrecognition ~~lost~~by ~~sales~~an ~~and~~average ~~lower~~of ~~operating~~two ~~results~~months. The cumulative effect of a change in accounting principle was $330,000.

~~Our~~ In June 2001, ~~recent~~the ~~restructuring~~FASB ofissued ~~our~~SFAS ~~direct~~No. 141, ~~sales~~"Business ~~force~~Combinations", ~~and~~which ~~our~~eliminates ~~new~~the ~~sales~~pooling ~~incentive~~of ~~program~~interests ~~may~~method ~~not~~of ~~achieve~~accounting ~~the~~for ~~expected~~all ~~results.~~business Wecombinations ~~have~~initiated ~~recently~~after ~~restructured~~June 30, ~~our~~2001 ~~direct sales force~~ and ~~introduced~~addresses ~~a new sales incentive plan for~~ the ~~direct~~initial ~~sales~~recognition ~~force~~and ~~for~~measurement ~~fiscal~~of ~~2002.~~goodwill ~~Although~~and weother ~~believe~~intangible ~~that~~assets ~~these~~acquired ~~efforts~~in ~~will~~a ~~provide~~business ~~better,~~combination. ~~more focused~~The ~~sales~~Company ~~management~~adopted ~~and~~SFAS ~~improved~~No. 141 ~~incentives~~ for business ~~our~~combinations ~~sales~~initiated ~~representatives~~after June 30, ~~there can be no assurance that these changes will result in the intended improvement of the effectiveness of our direct sales force~~2001.

~~Our~~ In June 2001, ~~inability~~the toFASB ~~estimate~~issued ~~accurately~~SFAS ~~the~~No. 142, ~~requirements~~"Goodwill ~~for~~and ~~professional~~Other ~~services~~Intangible ~~projects~~Assets" ~~could~~which ~~have~~addresses athe ~~negative~~initial ~~impact~~recognition onand ~~our~~measurement ~~results~~ of ~~operations.~~ ~~Our~~intangible ~~professional~~assets ~~services~~acquired outside of a business ~~requires~~combination ~~submitting~~and ~~bids~~the toaccounting ~~customers~~for ~~based~~goodwill onand ~~estimates~~other ofintangible ~~the~~assets ~~time~~subsequent ~~and~~to ~~expense~~their ~~needed~~acquisition. toSFAS ~~meet~~No. 142 ~~various~~provides ~~project~~that ~~specifications~~intangible assets with finite useful ~~and~~lives ~~deadlines.~~be ~~Failure~~amortized toand ~~estimate~~that ~~accurately~~goodwill and ~~execute~~intangible ~~within~~assets ~~proper~~with ~~estimates~~indefinite ~~has~~lives ~~had~~will anot ~~negative~~be ~~impact~~amortized, but will rather be tested at least annually for impairment. The Company will adopt SFAS No. 142 on ~~our~~June 1, ~~gross~~2002. ~~margins~~Upon inadoption ~~the~~of ~~past~~SFAS No. 142, ~~Management~~the ~~has~~Company ~~developed~~will ~~improved~~stop ~~cost~~the ~~controls~~amortization ~~and management~~of ~~oversight~~goodwill that resulted from business combinations initiated prior to ~~produce~~the ~~better~~adoption of ~~estimates~~SFAS ~~and~~No. 141. ~~project~~The ~~execution~~Company evaluated goodwill under the SFAS No. 142 ~~There~~transitional ~~can~~impairment betest noand ~~assurance~~has determined that ~~these~~there ~~improvements~~ will not be ~~successful~~an impairment loss.

~~Our~~ The Company ~~inability~~will toadopt ~~obtain~~SFAS ~~sufficient~~No. 144, ~~quantities~~"Accounting offor ~~critical~~the ~~components~~Impairment ~~could~~or ~~adversely~~Disposal ~~impact~~of ~~our~~Long-Lived ~~business~~Assets," ~~and~~effective ~~results~~June 1, of2002. ~~operations~~SFAS No. 144 Weaddresses ~~purchase~~financial ~~several~~accounting ~~critical~~and ~~components~~reporting ~~from~~for ~~single~~the impairment or ~~sole~~disposal ~~source~~of ~~vendors~~long-lived ~~for~~assets. ~~which~~SFAS ~~alternative~~No. 144 ~~sources~~supersedes ~~are~~SFAS ~~not currently developed~~No. 121, ~~Development~~"Accounting offor ~~alternative~~the ~~suppliers~~Impairment ~~would~~of Long-Lived ~~require~~Assets aand ~~significant amount~~for ofLong-Lived ~~time~~Assets to ~~qualify~~Be inDisposed Of," and the ~~case~~accounting ofand ~~certain~~reporting provisions of ~~our~~APB ~~components~~Opinion No. 30, We"Reporting dothe ~~not~~Results ~~maintain~~of Operations—Reporting ~~long-term~~the ~~supply~~Effects ~~agreements~~of ~~with~~Disposal ~~any~~ of ~~these~~a ~~vendors.~~Segment ~~The~~of ~~inability~~a toBusiness, ~~develop~~and ~~alternative~~Extraordinary, ~~sources for~~Unusual ~~these~~and ~~single~~Infrequently orOccurring ~~sole~~Events ~~source~~and ~~components~~Transactions," orfor tothe ~~obtain~~disposal ~~sufficient~~of ~~quantities~~a segment of ~~these~~a business ~~components~~(as ~~could~~previously ~~result~~defined in ~~delays~~that orOpinion). ~~reductions~~Although inthe ~~product~~Company ~~shipments~~has not completed its assessment, ~~which~~it ~~could~~does ~~adversely~~not ~~affect~~expect ~~our~~the ~~business,~~adoption of SFAS No. 144 to have a material effect on the consolidated financial ~~condition~~position ~~and~~or results of operations of the Company.

~~Our~~ In July 2002, ~~inability~~the toFASB ~~achieve~~issued ~~planned~~SFAS ~~manufacturing volumes could adversely impact our results of operations~~No. 146, ~~There~~"Accounting ~~can~~for beCosts noAssociated ~~assurance~~with ~~that our~~Exit ~~manufacturing facilities will achieve~~ or ~~maintain~~Disposal ~~acceptable~~Activities". ~~manufacturing~~SFAS ~~volumes~~No. 146 inrequires the ~~future.~~Company ~~The inability~~ to ~~achieve~~recognize ~~planned~~costs associated ~~volumes~~with ~~from~~exit ~~our~~or ~~manufacturing facilities~~disposal ~~could~~activities ~~have~~when anthey ~~adverse~~are ~~effect~~incurred onrather ~~our~~than ~~business,~~at ~~financial~~the ~~condition~~date ~~and results~~ of ~~operations.~~a ~~Any~~commitment ~~problems experienced by us in our current or future transitions~~ to ~~new~~an ~~processes~~exit ~~and products~~ or ~~the~~disposal ~~consolidation~~plan. ofThe ~~manufacturing~~Company ~~operations~~will ~~could~~adopt ~~have~~SFAS aNo. 146 ~~material~~for ~~adverse~~exit ~~effect~~or ondisposal activities ~~our~~initiated ~~business~~after December 31, ~~financial condition and results of operations~~2002.

~~Sales~~Critical toAccounting the U.S. Government may result in fluctuations due to their budget constraints and new initiatives. Government revenues primarily expose us to risks from reductions in budget allocations to support regulation and administrative offices. The government may periodically undertake initiatives that create opportunities to help them streamline 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 to streamline processes could eventually have a negative impact on our business, financial condition and results of operations. Policies

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as of the dates

and for the periods presented. Actual results could differ from those estimates. Such estimates include the allowance for doubtful accounts, restructuring reserves, inventory reserves, and recoverability of deferred tax assets.

•: The Company records an allowance for doubtful accounts based on a review of the collectibility of its accounts receivable. Management determines the adequacy of this allowance by analyzing historical bad debts, continually evaluating individual customer receivables and considering the customer's financial condition and current economic conditions. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be required. The accounts receivable balance as of May 31, 2002 was $15.7 million net of allowance for doubtful accounts of $0.9 million. The Company believes that the reported allowances at May 31, 2002 are adequate.
•: The Company records restructuring charges incurred in connection with consolidation or relocation of operations or shutdowns of specific sites. These restructuring charges, which reflect the commitment to a termination or exit plan that will begin within twelve months, are based on estimates of the expected costs associated with severance, site closure, contract terminations or other costs directly related to the restructuring. If the actual cost incurred exceeds the estimated cost, an additional charge to earnings will result. If the actual cost is less than the estimated cost, a credit to earnings will be recognized.
•: The Company establishes inventory reserves when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based upon assumptions of future demand for products and market conditions. The Company regularly evaluates the ability to realize the value of inventory based upon a combination of factors including the following; historical usage rates, forecasted sales or usage and estimated current and future market values. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. As of May 31, 2002, the Company's inventory of $4.7 million is stated net of inventory reserves of $1.5 million. If actual demand for products deteriorates or market conditions are less favorable then projected, additional inventory reserves may be required. The Company believes that the reported reserves at May 31, 2002 are adequate.
•: The Company records deferred income tax assets on the balance sheet related to events that impact financial statements and tax returns in different periods. The Company evaluates the recoverability of recorded deferred tax assets by considering future cash flows and the applicability of tax laws, tax jurisdictions and certain other assumptions. The Company has determined that a valuation allowance of $0.1 million at May 31, 2002 is appropriate at the present time and is evaluated on a quarterly basis. If the Company is to realize the deferred tax assets in an amount in excess of reported net amounts, an adjustment to the deferred tax assets would increase earnings in the period such determination was made. Similarly, if the Company determined that it is unable to realize the net deferred tax assets to the extent reported, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.

Revenue Recognition—Revenues on product sales are recognized upon product shipment when risk of loss and title transfer, except mobile filing equipment. Revenue related to mobile filing equipment requiring installation is recognized upon completion of such installation. Revenue related to professional services is recognized upon completion of such services. Imaging services revenues are recognized on a percentage of completion method. Equipment service and software support contract revenues are recognized ratably over the contractual period or as the services are performed.

Shipping and Handling Fees and Costs—In September 2000, the Emerging Issues Task Force issued EITF 00-10, Accounting for Shipping and Handling Fees and Costs ("EITF 00-10"). EITF 00-10

requires shipping and handling fees billed to customers to be classified as revenue and the classification of shipping and handling costs to be disclosed in the notes to the consolidated financial statements if they are not classified as cost of sales. The Company includes shipping and handling fees billed to customers in revenues, net of the related shipping and handling costs. Shipping and handling costs included as a reduction to revenues totaled $4.7 million, $5.4 million and $6.8 million for fiscal 2002, 2001 and 2000, respectively.

Business Environment and Risk Factors

The Company's future operating results may be affected by various trends and factors, which we must successfully manage in order to achieve favorable operating results. In addition, there are trends and factors beyond our control, which affect our operations. Such trends and factors include, but are not limited to, possible adverse changes in general economic conditions or conditions in the specific markets for our products, governmental regulation, fluctuations in foreign exchange rates, force majeure, and other factors, including, but not limited to, those listed below.

Failure to manage expenses in alignment with revenues could adversely impact our results of operations and financial condition. We incurred significant costs in fiscal 2001 to restructure our expense levels in line with expected revenues and implemented additional cost reduction programs in fiscal 2002. If the restructuring does not prove to be sufficient or if we fail to take additional actions that may become necessary to align future expenses with future revenue levels, our results of operations and financial condition could be adversely impacted.

The continued effects of the general state of the world economy could adversely impact our results of operations and financial condition. The downturn in world economic conditions could have a material adverse effect on our results of operations and financial condition. Our experience indicates that our industry lags general business trends. Therefore, the timing of a recovery for the Company is also uncertain.

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

The impact of the recent terrorist attacks in the United States 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 terrorist attacks of September 11, 2001 have had an immediate impact on our business as a result of business disruption generally, including transportation disruption, deferral of customer purchasing decisions and supply chain disruption, the long-term effects are not known at this time.

We may not be able to achieve higher market penetration for sales of large document management solution projects. Although from fiscal 2001 onward we have focused our selling efforts on obtaining a balanced mix of orders of varying sizes and types, large projects may be important to achieving revenue growth. While the Company does not know of a single large competitor with the capability to handle these large projects, if we fail to achieve significant market penetration for such projects, revenue growth may be limited 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 performance depends in significant part upon attracting and retaining key management, sales, manufacturing, marketing and technical support personnel. The inability to attract, assimilate or retain highly qualified personnel in the future on a

timely basis could have a material adverse effect on our business, results of operations and financial condition.

The ongoing strategic alternatives evaluation process could have a material adverse impact on our business, results of operations and financial condition. In October 2001, the Company announced that it would explore strategic alternatives for maximizing stockholder value. As of July 29, 2002, the Company entered into a definitive Merger Agreement with T Acquisition Co. and T Acquisition L.P., affiliates of HS Morgan Limited Partnership pursuant to which T Acquisition Co. will merge with and into the Company. This activity and announcement could cause uncertainty with our employees including management, sales and other personnel. It may also have a negative impact on our customers and suppliers. The impact of these uncertainties could have a material adverse effect on our business, results of operations and financial condition.

Failure to consummate the proposed merger with T Acquisition Co. could have a material adverse impact on our business, results of operations and financial condition. The Company could incur certain financial penalties for noncompliance with the various terms and conditions of the Merger Agreement that could have a material adverse effect on our business, results of operations and financial condition.

Our operating results may fluctuate from period to period. Factors affecting our operating results and gross margins include the volume of product sales, competitive pricing pressures, the ability to match supply with demand, changes in product and customer mix, changes in the channels through which our products and services are distributed, timing of 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 manufacturing volumes with our new and existing products, exchange rate fluctuations, a change in our effective tax rate and changes in general economic conditions. All of these factors are difficult to forecast and these or other factors can materially affect our quarterly or annual operating results.

Our liquidity could be adversely impacted by unexpected events. Although we believe that we have sufficient cash on hand and expected cash from operations to satisfy our working capital needs for at least the next twelve months, any significant unexpected cash requirements could adversely impact our liquidity. In those circumstances, we would be required to seek third party financing and we cannot be certain that financing will be available on acceptable terms or at all. Factors affecting our cash flows include net losses, the timely collection of accounts receivable from customers, the willingness of suppliers to extend normal credit terms, the purchase and sale of assets and the willingness of financial institutions to lend to us. Although our projections of these factors indicate that our operational cash flows, together with our existing cash and cash equivalent balances and our borrowing capacity will adequately finance anticipated operations and capital expenditures for at least the next twelve months, investors are cautioned that such projections inherently involve risks and uncertainties.

Failure to compete effectively could have a material adverse impact on our results of operations. Competition may increase in the future from existing competitors, new competitors and/or from other companies offering products and services that may be less costly or provide additional features. Unless we respond effectively, such competition could result in lost sales and lower operating results.

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

Failure to achieve planned manufacturing volumes could adversely impact our business, financial condition and results of operations. There can be no assurance that our manufacturing facilities will achieve or maintain acceptable manufacturing volumes in the future. The inability to achieve planned volumes from 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 to new processes and products or the consolidation of manufacturing operations could have a material adverse effect on our business, financial condition and results of operations.

Sales to the U.S. Government may result in fluctuations due to their budget constraints and new initiatives. Government revenues primarily expose us to risks from reductions in budget allocations to support regulation and administrative offices. The government may periodically undertake initiatives that create opportunities to help agencies streamline 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 to streamline processes could eventually have a negative impact on our business, financial condition and results of operations.

Unfavorable intellectual property developments could adversely impact our business and results of operations. We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We have been notified in the past and may be notified in the future of claims that they may be infringing upon patents or other intellectual property rights owned by third parties. There can be no assurance that in the future any patents held by us will not be invalidated, that patents will be issued for any of our pending applications or that any claims allowed from existing or pending patents will be of sufficient scope or strength or be issued in the primary countries where our products can be sold to provide meaningful protection or any commercial advantage to us. Additionally, our competitors may be able to design around our patents.

A ~~significant~~negative ~~decrease~~impact into our international ~~sales~~operations could adversely impact our business, financial condition and results of operations. International sales accounted for approximately 2524% and 2225%, respectively, of our consolidated total revenues in fiscal ~~2001~~2002 and ~~2000~~2001. Fluctuations in currencies negatively impacted us in fiscal 2001 and could adversely affect our business, financial condition and results of operations in the future. In addition, gains and losses on the conversion to United States dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in our results of operations. Because sales of our products have been denominated to date primarily in United States dollars, increases in the value of the United States dollar could increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country. We are subject to the risks of conducting business internationally, including foreign government regulation and general geopolitical risks such as political and economic instability, potential hostilities and changes in diplomatic and trade relationships. Manufacturing and sales of our products may also be materially adversely affected by factors such as unexpected changes in, or imposition of, regulatory requirements, tariffs, import and export restrictions and other barriers and restrictions, longer payment cycles, greater difficulty in accounts receivable collection, potentially adverse tax consequences, the burdens of complying with a variety of foreign laws and other factors beyond our control. In addition, the laws of certain foreign countries 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 the laws of the United States and thus make piracy of our products a more likely possibility. There can be no assurance that these factors will not have a material adverse effect on our business, financial condition orand results of operations.

~~Our~~ITEM ~~inability~~7 ~~to manage expenses in alignment with revenues could adversely impact our results of operations and financial condition~~A. We QUANTITATIVE ~~incurred~~AND ~~significant~~QUALITATIVE ~~one-time~~DISCLOSURES ~~costs~~ABOUT inMARKET fiscal 2001 to restructure our expense levels in line with expected revenues. If this restructuring was not sufficient and if we fail to take additional actions that may become necessary to align future expenses with future revenue levels, our business, results of operations and financial condition could be adversely affected. RISK

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to financial market risk related to fluctuations in interest rates and in foreign currency exchange rates.

The Company's exposure to market risk due to fluctuations in interest rates relates primarily to its short-term investment portfolio, which consists of corporate debt securities, which are classified as available-for-sale and were reported at an aggregate fair value of $3.0 million as of May 31, 2001. These available-for-sale securities are subject to interest rate risk in as much as their fair value will fall, if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing at May 31, 2001, the fair value of the portfolio would not decline by a material amount. The Company does not use derivative financial instruments to mitigate the risks inherent in these securities. However, the Company does attempt to reduce such risks by typically limiting the maturity date of such securities to no more than nine months, placing its investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer. In addition, the Company believes that it currently has the ability to hold these investments until maturity, and 20

17 The Company's exposure to market risk due to fluctuations in interest rates relates primarily to its short-term investment portfolio, which consists of corporate debt securities, which are classified as available-for-sale and were reported at an aggregate fair value of $2.3 million as of May 31, 2002. These available-for-sale securities are subject to interest rate risk inasmuch as their fair value will fall, if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing at May 31, 2002, the fair value of the portfolio would not decline by a material amount. The Company does not use derivative financial instruments to mitigate the risks inherent in these securities. However, the Company does attempt to reduce such risks by typically limiting the maturity date of such securities to no more than nine months, placing its investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer. In addition, the Company believes that it currently has the ability to hold these investments until maturity, and therefore, believes that reductions in the value of such securities attributable to short-term fluctuations in interest rates would not materially affect the financial position, results of operations or cash flows of the Company.

The Company's exposure to market risk due to fluctuations in foreign currency exchange rates relates primarily to the intercompany receivable balance with its Netherlands subsidiary. Such intercompany receivable balance at May 31, 2002 was $0.2 million; therefore, ~~believes~~a hypothetical 10% adverse change in Euro against U.S. dollars would not result in a material foreign exchange loss. Although the Company transacts business with various foreign countries, settlement amounts are usually based on local currency. Transaction gains or losses have not been significant in the past and there is no hedging activity on Euro or other currencies. Consequently, the Company does not expect that reductions in the value of such ~~securities~~intercompany ~~attributable~~receivable tobalances ~~short-term~~or ~~fluctuations~~of other accounts denominated in ~~interest~~foreign currencies resulting from even a sudden or significant fluctuation in foreign exchange rates, would ~~not~~have ~~materially~~a ~~affect~~direct material impact on the Company's financial position, results of operations or cash flows ~~of the Company~~.

~~The~~ In ~~Company's~~January 1999, ~~exposure~~certain tomember ~~market~~countries ~~risk~~of ~~due~~the toEuropean ~~fluctuations~~Union inestablished ~~foreign~~permanent, ~~currency~~fixed ~~exchange~~conversion rates ~~relates~~between ~~primarily~~their toexisting ~~the~~currencies ~~intercompany~~and ~~balance~~the ~~with~~European ~~its~~Union's ~~European~~common currency ~~subsidiary~~(the Euro). ~~Although~~The ~~the Company~~transition ~~transacts~~period ~~business~~for ~~with~~conversion ~~various~~to ~~foreign~~the ~~countries,~~Euro ~~settlement~~was ~~amounts~~January 1, ~~are~~1999 ~~usually~~through ~~based~~January 1, on2002, ~~local~~at ~~currency.~~which ~~Transaction~~time ~~gains~~all orlegal ~~losses~~tender ~~have~~within ~~not~~the ~~been~~participating ~~significant~~member countries inconverted to the ~~past~~Euro. ~~and~~The ~~there~~timing isof ~~no hedging~~phasing ~~activity~~out onall ~~Netherlands~~uses ~~Guilders~~of orexisting ~~other~~ currencies. ~~Based~~will oncomply with the ~~intercompany~~legal ~~balance~~requirements ofand ~~$0.3 million~~also atbe ~~May 31,~~scheduled ~~2001,~~to afacilitate ~~hypothetical~~optimal ~~10%~~coordination ~~adverse~~with ~~change~~the plans inof ~~Netherlands~~our ~~Guilders against~~vendors, Udistributors and customers.S. ~~dollars~~Work ~~would~~related ~~not~~to ~~result~~the inintroduction aof ~~material~~the ~~foreign~~Euro ~~exchange~~and ~~loss.~~the ~~Consequently,~~phasing out of the ~~Company~~other ~~does~~currencies ~~not~~includes ~~expect~~converting ~~that~~information ~~reductions~~technology insystems; recalculating ~~the~~currency ~~value~~risk; ofand ~~such~~taking ~~intercompany~~action, ~~balances~~if orneeded, regarding continuity of ~~other~~contracts; ~~accounts denominated~~and inmodifying ~~foreign~~our ~~currencies~~processes ~~resulting~~for ~~from~~preparing ~~even~~tax, aaccounting, ~~sudden~~payroll orand ~~significant~~customer ~~fluctuation~~records. inThe ~~foreign~~introduction of ~~exchange~~the ~~rates,~~Euro ~~would~~and the phasing out of the other currencies did not have a ~~direct~~ material impact on the Company's financial ~~position~~condition, results of operations or cash flows.

Notwithstanding the foregoing analysis of the direct effects of interest rate and foreign currency exchange rate fluctuations on the value of certain of the Company's investments and accounts, the indirect effects of such fluctuations could have a material adverse effect on the Company's business, financial condition and results of operations. For example, international demand for the Company's products could be affected by foreign currency exchange rates. In addition, interest rate fluctuations may affect the buying patterns of the Company's customers. Furthermore, interest rate and currency exchange rate fluctuations have broad influence on the general condition of the U.S., foreign and global economies, which could materially and adversely affect the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's financial statements included with this Form 10-K are set forth under Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Directors. The ~~sections~~Company's ~~entitled~~Board ~~"Proposal No. 1: Election~~ of Directors," ~~and~~consists ~~"Executive~~of ~~Compensation~~seven ~~and Other Matters—Section 16~~(a7) directors. ~~Beneficial~~The directors are ~~Ownership~~serving ~~Reporting~~terms ~~Compliance"~~that ~~which~~would ~~appear~~have inexpired at the ~~Company's~~2002 ~~Proxy~~Annual ~~Statement~~Stockholders ~~for~~Meeting ~~the~~to ~~Company's~~be ~~2001~~held ~~Annual~~for ~~Meeting~~fiscal of2002 ~~Stockholders~~and isare ~~incorporated~~expected ~~herein~~to byserve ~~reference.~~as ~~For~~directors ~~information~~until ~~with~~consummation ~~respect~~of to the ~~executive~~proposed ~~officers~~merger of the Company,. ~~see~~Information ~~"Executive~~with ~~Officers"~~respect into ~~Part I~~their ofage ~~this~~and ~~report~~background is set forth below.

ITEM 11. EXECUTIVE COMPENSATION

Name	Position With the Company	Age	Director Since
Gary W. Ampulski	Director, President and Chief Executive Officer	56	2000
Kathryn S. Hanson	Director	52	1996
Jeffrey A. Heimbuck	Director	56	2000
Warren G. Lichtenstein	Director	37	2001
Jerry K. Myers	Director	61	1996
Hans A. Wolf	Chairman of the Board	74	1992
David W. Wright	Director	44	2001

Gary W. Ampulski. ~~The~~Mr. Ampulski ~~information~~was ~~related~~appointed toa ~~executive~~Director ~~compensation~~of the Company effective December 14, ~~which~~2000, ~~appears~~and inPresident ~~the~~and ~~Company's~~Chief ~~Proxy~~Executive ~~Statement~~Officer ~~for~~effective January 1, 2001. Prior to joining the ~~Company's~~company, ~~2001~~he ~~Annual~~was ~~Meeting~~President of ~~Stockholders~~Moore inNorth ~~the~~America, Inc. from ~~section~~March 2000 ~~entitled~~to ~~"Executive~~December 2000 ~~Compensation~~ and ~~Other~~President ~~Matters"~~of isMoore's ~~incorporated~~Business ~~herein~~Communication byServices ~~reference~~Division from January 1993 to March 2000.

Kathryn S. Hanson. Ms. Hanson has been a director of the Company since April 1996. Since 1988, Ms. Hanson has served in various executive roles, including her present position as Director of Fletcher Spaght, a strategic and marketing consulting practice for high technology ~~ITEM~~companies. 12Ms. Hanson ~~SECURITY~~founded ~~OWNERSHIP~~and OFserved ~~CERTAIN~~as ~~BENEFICIAL~~the ~~OWNERS~~Chief ~~AND~~Executive ~~MANAGEMENT~~ Officer of eMentoring, an Internet eLearning company, from October 1998 to March 2000, when eMentoring was purchased by Pensare, an Internet eLearning company. From March 2000 to March 2001, Ms. Hanson also served as Vice President of Marketing of Pensare. From February 1997 to September 1998, she served as Chairman, Vice President of Marketing and co-Founder of SatMetrix (previously named CustomerCast, Inc.), an internet customer satisfaction company. She has also served in executive roles at Convergent Technology from 1985 to 1988 and Hewlett Packard Company from 1982 to 1985.

Jeffrey A. Heimbuck. ~~The~~Mr. Heimbuck ~~section~~has ~~entitled~~been ~~"Stock~~a ~~Ownership~~director of ~~Certain~~the ~~Beneficial~~Company ~~Owners~~since ~~and~~May 2000. Since ~~Management"~~1996, ~~which~~Mr. Heimbuck ~~appears~~has invested in ~~the~~early ~~Company's~~stage ~~Proxy~~companies ~~Statement~~and ~~for~~venture capital funds and he sits on the ~~Company's~~Boards ~~2001~~of ~~Annual~~Directors of early stage companies. From 1992 to 1996, Mr. Heimbuck ~~Meeting~~served as President and Chief Executive Officer of ~~Stockholders~~INMAC, isa ~~incorporated~~manufacturer ~~herein~~and byinternational ~~reference~~business-to-business reseller of computer and networking products. From 1988 to 1992, he served as President of Quantum Commercial Products (previously Plus Development). From 1986 to 1988, Mr. Heimbuck served as a partner of Montgomery Securities Venture Funds. Prior to 1986, he served as a senior executive in various other public and private companies.

Warren G. Lichtenstein. Mr. Lichtenstein has been a director of the Company since September 2001. He has served as the Chairman of the Board, Secretary and the Managing Member of Steel Partners, L.L.C., the general partner of Steel Partners II, L.P. ("Steel"), since ~~ITEM~~January 1996. 13Prior to such time, Mr. Lichtenstein ~~CERTAIN~~was ~~RELATIONSHIPS~~the ~~AND~~Chairman ~~RELATED~~and ~~TRANSACTIONS~~ a director of Steel Partners, Ltd., the general partner of Steel Partners Associates, L.P., which was the general partner of Steel from 1993 to

The section entitled "Certain Relationships and Related Transactions" which appears in the Company's Proxy Statement for the Company's 2001 Annual Meeting of Stockholders is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

A. The following documents are filed as part of this report:

		Page Number
1. Consolidated Financial Statements
	Independent Auditors' Report	24
	Consolidated Statements of Earnings for the three years ended May 31, 2001	25
	Consolidated Balance Sheets at May 31, 2001 and 2000	26
	Consolidated Statements of Stockholders' Equity for the three years ended May 31, 2001	27
	Consolidated Statements of Cash Flows for the three years ended May 31, 2001	28
	Statement of Accounting Policies	29-31
	Notes to Consolidated Financial Statements	32-44
2. Consolidated Financial Statement Schedule
	Independent Auditors' Report	45
	Schedule for the three years ended May 31, 2001:
	Schedule II Valuation and Qualifying Accounts	46

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

3. Exhibits

See Index to Exhibits on pages 20 and 21. The Exhibits listed in the accompanying Index are referenced as part of this report.

B. Reports on Form 8-K:

The Company filed one report on Form 8-K on June 8, 2000 related to the Agreement for Purchase of Assets with Docucon, Inc. and filed an amendment thereto under Item 7 dated August 8, 2000.

The Company filed one report on Form 8-K on September 22, 2000 related to the remarks by the Company's Chairman and Interim Chief Executive Officer, Hans A. Wolf, at the Annual Meeting of Stockholders of the Company held on September 21, 2000.

The Company filed one report on Form 8-K on June 20, 2001 related to the relocation of the Company's principal executive offices and a program to restore stockholder value and long-term growth.

EXHIBITS:
3.1		Certificate of Incorporation (Exhibit 3.1 of 1993 Form 10-K)2
3.2		Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock (Exhibit 3.2 filed with Form 10-Q for the quarter ended November 30, 1996)2
3.3		Second Amended and Restated Bylaws of the Company dated October 17, 1996 (Exhibit 4 of Form 8-K dated October 17, 1996)2
4.1		Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (including as Exhibit A the form of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement)(Exhibit 1 of Form 8-K dated October 17, 1996)2
10.1		1991 Stock Option Plan (Exhibit 10.1 of the 1991 Form 10-K)1, 2
10.2		Note Agreement of Tab Products Co. dated as of March 20, 1992 in the aggregate principal amount of $15,000,000 (Exhibit 10.5 of the 1992 Form 10-K)2
10.3		Amendment dated July 27, 1993 to Note Agreement of Tab Products Co. dated as of March 20, 1992 (Exhibit 10.16 filed with the 1993 Form 10-K)2
10.4		Note Agreement of Tab Products Co. dated October 7, 1993 (Exhibit 10.20 filed with Form 10-Q for the quarter ended August 31, 1993)2
10.5		Letter dated October 7, 1993 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.21 filed with Form 10-Q for the quarter ended August 31, 1993)2
10.6		Letter dated October 27, 1993 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.27 filed with the 1994 Form 10-K)2
10.7		Letter dated June 15, 1995 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.32 filed with the 1995 Form 10-K)2
10.8		Letter dated July 21, 1995 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.33 filed with the 1995 Form 10-K)2
10.9		Letter dated December 13, 1995 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.35 filed with Form 10-Q for the quarter ended November 30, 1995)2
10.10		Letter dated August 20, 1996 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.37 filed with the 1996 Form 10-K)2
10.11		Form of Indemnity Agreement between the Company and each of its Executive Officers and Directors (Exhibit 10.38 filed with Form 10-Q for the quarter ended November 30, 1996)1, 2
10.12		Outside Directors' Option Plan and Agreement (Exhibit 10.41 filed with Form 10-Q for the quarter ended November 30, 1996)1, 2
10.13		Employment Agreement between the Company and Philip C. Kantz (Exhibit 10.42 filed with Form 10-Q for the quarter ended February 28, 1997)1, 2
10.14		Non-qualified Stock Option Agreement between the Company and Philip C. Kantz (Exhibit 10.43 filed with Form 10-Q for the quarter ended February 28, 1997)1, 2
10.15		Non-qualified Stock Option Agreement between the Company and Philip C. Kantz (Exhibit 10.44 filed with Form 10-Q for the quarter ended February 28, 1997)1, 2
10.16		Non-qualified Stock Option Agreement between the Company and Philip C. Kantz (Exhibit 10.45 filed with Form 10-Q for the quarter ended February 28, 1997)1, 2
10.17		Bank of America Business Loan Agreement dated November 1, 1998 (Exhibit 10.1 filed with form 10-Q for the quarter ended November 30, 1998)2
10.18		Lease Agreement dated January 29, 1999 (Exhibit 10.1 filed with Form 10-Q for the quarter ended February 28, 1999)2
10.19		Letter dated May 28, 1999 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.21 filed with 1999 Form 10-K)2
10.20		Bank of America Amendment No.1 dated May 31, 1999 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.22 filed with 1999 Form 10-K)2

10.21		Bank of America Amendment No.2 dated May 31, 1999 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.23 filed with 1999 Form 10-K)2
10.22		Form of Change of Control Agreement between the Company and certain Executive Officers hired before January 1, 2001 (Exhibit 10.24 filed with 1999 Form 10-K)2
10.25		Sale of Field Service Group as reported on Form 8-K/A (filed July 30, 1999)2
10.26		Form of Tab Products Co. Stock Purchase Agreement relating to the Leveraged Stock Purchase Program between the Company and certain executive officers and key employees (Exhibit 10.1 filed with Form 10-Q for the quarter ended November 30, 1999)1, 2
10.27		Bank of America Amendment No. 3 dated September 24, 1999 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.2 filed with Form 10-Q for the quarter ended November 30, 1999)2
10.28		Bank of America Amendment No. 4 dated January 13, 2000 to Business Loan Agreement dated November 30, 1998 (Exhibit 10.1 filed with Form 10-Q for the quarter ended February 29, 2000) 2
10.29		Bank of America Amendment No. 5 dated April 10, 2000 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.29 filed with 2000 Form 10-K)2
10.30		Confidential Retirement Agreement and General Release of Claims between Philip C. Kantz and Tab Products Co. (Exhibit 10.30 filed with 2000 Form 10-K)1, 2
10.31		Business Loan Agreement between Comerica Bank-California and Tab Products Co. dated November 21, 2000 (Exhibit 10.1 filed with Form 10-Q for the quarter ended November 30, 2000)2
10.32		Employment Agreement between the Company and Gary W. Ampulski (Exhibit 10.1 filed with Form 10-Q for the quarter ended February 28, 2001)1, 2
10.33		Change of Control Agreement between the Company and Gary W. Ampulski (Exhibit 10.2 filed with Form 10-Q for the quarter ended February 28, 2001)1, 2
10.34		Form of Change of Control Agreement for Executive Officers hired after January 1, 20011
10.35		Letter Agreement amending the Employment Agreement between the Company and Gary W. Ampulski, dated May 30, 20011
10.36		Promissory Note between the Company and Gary W. Ampulski, dated March 1, 2001
10.37		Non-Qualified Stock Option Agreement between the Company and Gary W. Ampulski dated December 14, 20001
10.38		2001 Nonstatutory Stock Option Plan and Form of Agreement1
23.1		Independent Auditors' Consent

SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vernon Hills, in the State of Illinois, on this 27th day of August, 2001.

TAB PRODUCTS CO. /S/ GARY W. AMPULSKI Gary W. Ampulski President & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Name	Title	Date
/s/ GARY W. AMPULSKI Gary W. Ampulski	President and Chief Executive Officer	August 27, 2001
/s/ DONALD J. HOTZ Donald J. Hotz	Vice President, Chief Financial Officer and Treasurer	August 27, 2001
/s/ ROBERT J. CRECCA Robert J. Crecca	Corporate Controller, Chief Accounting Officer and Asst. Secretary	August 27, 2001
/s/ HANS A. WOLF Hans A. Wolf	Chairman of the Board	August 27, 2001
/s/ KATHRYN S. HANSON Dr. Kathryn S. Hanson	Director	August 27, 2001
/s/ JEFFREY A. HEIMBUCK Jeffrey A. Heimbuck	Director	August 27, 2001
/s/ JERRY K. MYERS Jerry K. Myers	Director	August 27, 2001

January 1996. He has served as a director of WebFinancial Corporation, a consumer and commercial lender, since 1996 and as its President and Chief Executive Officer since December 1997. Mr. Lichtenstein has served as a director and the Chief Executive Officer of Gateway Industries, Inc., a provider of database development and Web site design and development services, ~~TAB~~since ~~PRODUCTS~~1994 COand as the Chairman of the Board since 1995. ~~CONSOLIDATED~~ ~~FINANCIAL~~Mr. Lichtenstein ~~STATEMENTS AND~~has ~~CONSOLIDATED~~served ~~FINANCIAL~~as ~~STATEMENT~~a ~~SCHEDULE FORM~~Director ~~10-K~~and ~~ITEM~~the ~~14 FISCAL~~President ~~YEARS~~and ~~ENDED~~Chief ~~MAY~~Executive 31Officer of Steel Partners, Ltd., a financial advisory and management company since June 1999 and as its Secretary and Treasurer since May 2001. He has also served as Chairman of the Board of Directors of Caribbean Fertilizer Group Ltd., a private company engaged in the production of agricultural products in Puerto Rico and Jamaica, since June 2000. ~~AND~~Mr. Lichtenstein ~~1999~~ is a director of SL Industries, Inc., a manufacturer and marketer of Power and Data Quality systems and equipment. Mr. Lichtenstein has served as Chairman of the Board and as Chief Executive Officer of SL Industries since January 2002 and February 2002, respectively. He is also a director of the following publicly held companies: Tandycrafts, Inc., a manufacturer of picture frames and framed art; Puroflow Incorporated, a designer and manufacturer of precision filtration devices; ECC International Corp., a manufacturer and marketer of computer-controlled simulators for training personnel to perform maintenance and operator procedures on military weapons; United Industrial Corporation, a designer and producer of defense, training, transportation and energy systems; and US Diagnostic Inc., an operator of outpatient medical diagnostic imaging and related facilities.

Jerry K. Myers. Mr. Myers has been a director of the Company since April 1996. Since January 1995, he has been a partner in the healthcare investment firm of CroBern Management Partnership, LLP. Since Decemver 1995, Mr. Myers has been Chairman of Medcor, Inc., a workers' compensation managed care firm. Since April 1999, he has been President and Chief Executive Officer and a director of SleepMed Incorporated. From 1990 to 1994 he served as President, Chief Executive Officer and a director of Steelcase, Inc. From 1986 through 1990 he was employed by TRW, Inc. serving as general manager of the automotive sector. Mr. Myers is also a director of SleepMed Incorporated.

Hans A. Wolf. Mr. Wolf has served as a director of the Company since February 1992 and as Chairman of the Board since February 1995. Mr. Wolf also served as Interim Chief Executive Officer of the Company from July, 2000 through December, 2000. Mr. Wolf was the Vice Chairman of Syntex Corporation ("Syntex") from October 1985 to December 1993, and was the Chief Administrative Officer at Syntex from October 1985 to February 1992. Mr. Wolf is also a director of Network Equipment Technologies, Inc. and a director of Satellite Healthcare, Inc.

David W. Wright. Mr. Wright has been a director of the Company since September 2001. Since 1995, he has served as a co-trustee, managing trustee and currently as President and managing member of Henry Investment Trust, L.P., the general partner of and investment advisor to Henry Partners, L.P. and Matthew Partners, L.P., two private investment partnerships that invest in securities of publicly traded companies. Mr. Wright has also served as a Director and Chairman of the Executive Committee of Carl Fisher, Inc., a publisher, distributor and retailer of serious music from 1996 to 1998, when that company was sold.

Agreements with Certain Stockholders. On September 10, 2001, the Company entered into separate agreements with Warren G. Lichtenstein and David W. Wright. Mr. Lichtenstein and Mr. Wright were each added to the Board of Directors and to the Company's slate of nominees for election as directors of the Company for a one-year term at the 2001 Annual Meeting, along with the five other current directors. One of Mr. Lichtenstein or Mr. Wright was also added, immediately, to each of the board's four standing committees. These agreements also provided that if reelected at the 2001 Annual Meeting, and if at least a majority of the elected board consisted of the Company's nominees, one of Mr. Lichtenstein or Mr. Wright would be appointed, so long as he serves on the Company's Board of Directors, to each of the Board of Director's standing committees and any special committees for which

they are not legally disqualified. In addition, provided the Company was not in material default under either of the two agreements, at the 2001 Annual Meeting, Steel Partners and Henry Investment ~~INDEPENDENT~~Trust ~~AUDITORS~~agreed to vote all of the shares beneficially owned by them and their affiliates in favor of the election of the Company's ~~REPORT~~ director nominees. Copies of these agreements were filed on September 11, 2001 by the Company as exhibits to a Current Report on Form 8-K.

To Executive Officers. For information with respect to the ~~Board~~executive officers of ~~Directors~~the ~~and~~Company, ~~Stockholders~~see "Executive ofOfficers" ~~Tab~~in ~~Products~~Part I Coof this report.:

Voting Agreements. ~~We have~~As ~~audited~~an ~~the~~inducement ~~accompanying~~and ~~consolidated~~a ~~balance~~condition ~~sheets~~to ofits ~~Tab~~entering ~~Products~~into ~~Co.~~the ~~and~~Merger ~~its~~Agreement ~~subsidiaries~~(see Item as1, ~~of May 31~~"General"), ~~2001~~T ~~and~~Acquisition, ~~2000~~L.P. ~~and~~has ~~the~~required ~~related~~that ~~consolidated~~all ~~statements~~ of ~~earnings,~~ ~~stockholders~~the Company's ~~equity,~~directors ~~and~~enter ~~cash~~into ~~flows~~support/voting ~~for~~agreements ~~each~~with ofrespect ~~the~~to ~~three~~shares ~~years~~of in the ~~period~~Company's ~~ended~~common ~~May 31,~~stock ~~2001.~~owned ~~These~~by ~~financial~~them ~~statements~~and their ~~are~~controlled ~~the~~affiliates. ~~responsibility~~The shares of ~~the~~common ~~Company's~~stock ~~management.~~that ~~Our responsibility~~are issubject to ~~express~~the ansupport/voting ~~opinion~~agreements onrepresent ~~these~~approximately ~~financial~~18% ~~statements~~of ~~based~~the onCompany's ~~our~~outstanding ~~audits~~shares.

We Under ~~conducted our audits in accordance with auditing standards generally accepted in~~ the ~~United~~support/voting ~~States~~agreements, ~~of America. Those standards require that we plan and perform~~ the ~~audit~~stockholders tosigning ~~obtain reasonable assurance about whether~~ the ~~financial~~agreements ~~statements~~have ~~are~~agreed ~~free of material misstatement. An audit includes examining~~that, onas along ~~test~~as ~~basis, evidence supporting~~ the ~~amounts~~support/voting ~~and~~agreement ~~disclosures~~is in ~~the financial~~effect, ~~statements.~~they Anwill ~~audit~~vote ~~also~~their ~~includes~~shares ~~assessing~~of the Company's ~~accounting~~common ~~principles~~stock ~~used~~ and ~~significant~~any ~~estimates~~shares ~~made~~over bywhich ~~management,~~they ashave ~~well~~sole asvoting ~~evaluating~~power ~~the~~or ~~overall~~control: ~~financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.~~

•: in favor of adoption and approval of the Merger Agreement, and
•: against any acquisition proposal, as defined in the Merger Agreement.

In Each ~~our~~stockholder ~~opinion,~~party ~~such~~to ~~consolidated~~a ~~financial~~support/voting ~~statements~~agreement ~~present~~also ~~fairly~~agreed that, inas ~~all~~long ~~material~~as ~~respects,~~ the ~~financial~~support/voting ~~position~~agreement ofis ~~Tab~~in ~~Products~~effect, ~~Co.~~the stockholder and ~~its~~his ~~subsidiaries~~or asher ofcontrolled ~~May 31,~~affiliates will not ~~2001~~sell ~~and~~or ~~2000,~~agree ~~and~~to ~~the~~sell ~~results~~or ofotherwise ~~their~~transfer ~~operations~~or ~~and~~dispose ~~their~~of ~~cash~~any ~~flows~~of ~~for~~their ~~each~~shares of the ~~three~~Company's ~~years~~common instock ~~the~~or ~~period~~any ~~ended~~voting ~~May 31,~~rights ~~2001~~with inrespect ~~conformity~~to the shares, other than with ~~accounting~~T ~~principles~~Acquisition, ~~generally~~L.P.'s ~~accepted~~prior inwritten consent, which consent will not be unreasonably withheld if the ~~United~~individual ~~States~~or ofentity ~~America~~to whom the shares are proposed to be sold, transferred or disposed agrees in writing to be bound by the support/voting agreement. However,

•: after the record date for the special meeting of the Company's stockholders to be held to vote on the merger agreement, the stockholders signing the support/voting agreements will be permitted to sell in open market transactions the number of shares of the Company's common stock permitted under the volume limitations of Rule 144 under the Securities Act of 1933 if the stockholder does not grant a proxy with respect to, or otherwise transfer the right to vote at, the special meeting the shares of the Company's common stock which are sold, and
•: after the date of the special meeting, the stockholder will be permitted to sell his or her shares in open market transactions without restriction under the support/voting agreement.

As The ~~discussed~~support/voting inagreements ~~the~~will ~~Statement~~remain ofin ~~Accounting~~effect ~~Policies,~~until ~~as of June 1, 2000,~~ the ~~Company~~first ~~changed its method of accounting for revenue recognition~~ to ~~conform~~occur ~~to the Statement~~ of ~~Accounting~~: ~~Bulletin No. 101.~~

•: the termination of the Merger Agreement in accordance with its terms,
•: the effective time of the merger,
•: the adoption by the parties to the Merger Agreement of any amendment to the Merger Agreement that reduces the merger consideration payable per share of the Company's common stock below $5.85 in cash, and
•: January 15, 2003.

~~DELOITTE &~~ The ~~TOUCHE~~stockholders ~~LLP~~signing the support/voting agreements, in their capacities as owners of shares of the Company's common stock, also agreed that during the term of the support/voting agreements they will not, and will not permit any of their controlled affiliates to, directly or indirectly, solicit, initiate, encourage or facilitate, or furnish or disclose nonpublic information in furtherance of, any inquiries

San Jose, California June 28, 2001 (August 13, 2001 as to Note 4)

~~TAB~~ with ~~PRODUCTS~~respect COto or the making of any acquisition proposal, or negotiate, explore or otherwise engage in discussions with any person, other than T Acquisition, L. P. and T Acquisition Co. or their representatives, with respect to any acquisition proposal, or enter into any agreement or understanding requiring the stockholder to abandon, terminate or fail to consummate the merger or any other transactions contemplated by the merger agreement or to otherwise assist in the effectuation of any acquisition proposal. However, nothing in the support/voting agreements will prevent the stockholders signing the agreements from taking any action or omitting to take any action in his or her capacity as a member of the board of directors of the Company, or any committee of the board, or, at the direction of the board of directors of the Company, or any committee of the board, as an officer or employee of the Company or any of its subsidiaries, in each case, in accordance with the terms of the merger agreement or as required by Delaware law to fulfill his or her fiduciary duties.

The ~~CONSOLIDATED~~directors ~~STATEMENTS~~signing OFthe ~~EARNINGS~~ support/voting agreements also agreed that in the event

•: of any stock dividend, stock split, recapitalization, reclassification, combination or exchange of shares on, of or affecting the Company's shares of the stockholder,
•: the stockholder purchases or otherwise acquires beneficial ownership of any shares of the Company, or
•: the stockholder voluntarily acquires the sole right to vote any of the Company's shares,

		Year Ended May 31
		2001			2000			1999
Revenues		$	118,522,000		$	130,568,000		$	155,620,000
Costs and expenses:
	Cost of revenues		74,442,000			80,590,000			95,879,000
	Selling, general and administrative		62,674,000			60,825,000			57,849,000
	Research and development		677,000			861,000			966,000
Total costs and expenses			137,793,000			142,276,000			154,694,000
Operating (loss) income			(19,271,000	)		(11,708,000	)		926,000
Gain on sale of business unit			—			13,794,000			—
Gain on sale of property			1,119,000			12,919,000			—
Interest and other, net			(214,000	)		(159,000	)		(334,000	)
(Loss) earnings before income taxes			(18,366,000	)		14,846,000			592,000
(Benefit) provision for income taxes			(6,612,000	)		6,272,000			430,000
Net (loss) earnings before cumulative effect of a change in accounting principle			(11,754,000	)		8,574,000			162,000
Cumulative effect of a change in accounting principle			(330,000	)		—			—
Net (loss) earnings		$	(12,084,000	)	$	8,574,000		$	162,000
(Loss) earnings per share
Basic net (loss) earnings per share before cumulative effect of a change in accounting principle		$	(2.28	)	$	1.67		$	0.03
Cumulative effect on prior years of a change in accounting principle		$	(0.06	)	$	—		$	—
Basic net (loss) earnings per share		$	(2.34	)	$	1.67		$	0.03
Shares used in computing basic net (loss) earnings per share			5,173,000			5,140,000			5,090,000
Diluted net (loss) earnings per share before cumulative effect of a change in accounting principle		$	(2.28	)	$	1.67		$	0.03
Cumulative effect on prior years of a change in accounting principle		$	(0.06	)	$	—		$	—
Diluted net (loss) earnings per share		$	(2.34	)	$	1.67		$	0.03
Shares used in computing diluted net (loss) earnings per share			5,173,000			5,142,000			5,122,000

then these additional shares will generally be subject to the terms of the support/voting agreement.

~~See~~ Notwithstanding ~~accompanying~~the ~~Statement~~foregoing, the stockholders signing the support/voting agreements made no agreements or understandings under the support/voting agreements in their capacity as a director, officer or employee of ~~Accounting~~the ~~Policies~~Company or any of its subsidiaries, and ~~Notes~~nothing toin ~~Consolidated~~the ~~Financial~~support/voting ~~Statements~~agreements will limit or affect any actions or omissions taken by the stockholder in his or her capacity as a director, officer or employee, including in exercising rights under the merger agreement, and none of these actions or omissions will be a breach of the support/voting agreement.

Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who beneficially own more than 10% of the Company's Common Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission ("SEC"). Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed by such person.

Based solely on the Company's review of such forms furnished to the Company and written representations from certain reporting persons, the Company believes that all filing requirements applicable to the Company's executive officers, directors and more than 10% stockholders were complied with.

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation. The following table sets forth information concerning the compensation of the Chief Executive Officer of the Company and each person that served in that capacity during fiscal 2002 and the four other most highly compensated executive officers of the Company as of May 31, 2002 whose total salary and bonus for the fiscal year ended May 31, 2002 exceeded $100,000, for services in all capacities to the Company and its subsidiaries, during the fiscal years ended May 31, 2002, 2001 and 2000.

~~TAB~~ ~~PRODUCTS~~ ~~CO.~~ SUMMARY COMPENSATION TABLE

CONSOLIDATED BALANCE SHEETS

	Annual Compensation					Long-Term Compensation
Name and Principal Position	Year	Salary		Bonus		Restricted Stock Awards⁽¹⁰⁾		Securities Underlying Options	All Other Compensation⁽¹¹⁾
Gary W. Ampulski⁽¹⁾ President and Chief Executive Officer	2002 2001 —	$ $	350,000 145,833 —	$ $	87,500⁽⁵⁾ 150,000⁽⁶⁾ —		0 0 —	0 260,000 —	$ $	5,665 3,055 —
William Beattie⁽²⁾ Vice President, International	2002 2001 2000	$ $ $	163,072 184,347 124,780	$ $ $	32,530 92,584⁽⁷⁾⁽⁸⁾ 6,579		0 0 0	0 30,000 0	$ $ $	9,588⁽¹²⁾ 4,306 786
Michael J. Nogle⁽³⁾ Vice President, Chief Information Officer	2002 2001 —	$ $	165,000 33,756 —	$ $	0 0 —		0 0 —	0 25,000 —	$ $	5,775 821 —
Carter M. Perez⁽⁴⁾ Vice President, U.S. Sales	2002 2001 2000	$ $ $	150,000 149,167 137,500	$ $ $	68,959⁽⁹⁾ 171,880⁽⁷⁾⁽⁹⁾ 96,340⁽⁹⁾	$	0 0 24,844⁽¹⁰⁾	0 35,000 0	$ $ $	2,313 5,358 6,020
Thomas J. Rauscher Vice President, Manufacturing and Distribution	2002 2001 2000	$ $ $	190,000 190,000 190,000	$ $ $	0 30,000⁽⁷⁾ 0	$	0 0 49,688⁽¹⁰⁾	0 50,000 0	$ $ $	4,115 5,550 5,785

⁽¹⁾: Mr. Ampulski was appointed President and Chief Executive Officer effective January 1, 2001.
⁽²⁾: Mr. Beattie joined the Company on December 1, 1998 and was appointed Vice President, International effective May 30, 2001. Mr. Beattie also served as Interim President and Interim Chief Operating Officer from July 2000 until January 2001.
⁽³⁾: Mr. Nogle was appointed Vice President and Chief Information Officer effective March 19, 2001.
⁽⁴⁾: Mr. Perez joined the Company on January 27, 1999 and was appointed Vice President, U.S. Sales effective December 19, 2000.
⁽⁵⁾: Consists of Mr. Ampulski's retention bonus paid on December 1, 2001, pursuant to his employment agreement with the Company. Mr. Ampulski was entitled to the retention bonus because his employment with the Company was not terminated prior to December 1, 2001. See "Employment Contracts and Termination of Employment and Change of Control Agreements" below.
⁽⁶⁾: Consists of Mr. Ampulski's hire-on bonus of $150,000, the bonus amount Mr. Ampulski anticipated he would have earned from his previous employer. Mr. Ampulski received this bonus in March 2001 pursuant to his employment agreement. See "Employment Contracts and Termination of Employment and Change of Control Agreements" below.
⁽⁷⁾: In July 2000, the Compensation Committee approved bonuses for Mr. Beattie, Mr. Perez and Mr. Rauscher in the amounts of $40,000, $35,000 and $30,000, respectively, as both a retention bonus to encourage these executive officers to remain with the Company until a permanent Chief Executive Officer was selected and in recognition of work done in the 2000 fiscal year.
⁽⁸⁾: Includes a bonus of $20,000 paid to Mr. Beattie for his services as Interim President and Interim Chief Operating Officer from July 2000 until January 2001. Also includes an incentive bonus of $32,584 earned by Mr. Beattie for the Company's Canadian operating performance.

	May 31
	2001			2000
ASSETS
Current assets:
Cash and cash equivalents	$	5,872,000		$	5,724,000
Short-term investments		2,965,000			5,170,000
Accounts receivable, less allowances for doubtful accounts of $889,000 and $1,095,000		23,507,000			29,685,000
Inventories		5,104,000			6,842,000
Tax refund receivable		4,764,000			—
Deferred income taxes		3,002,000			2,276,000
Other prepaid expenses		1,548,000			1,561,000
Total current assets		46,762,000			51,258,000
Property, plant and equipment, net		7,516,000			12,253,000
Goodwill, net		2,643,000			7,387,000
Deferred pension asset		3,134,000			1,788,000
Other assets		2,102,000			607,000
Total assets	$	62,157,000		$	73,293,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,816,000		$	10,024,000
Compensation payable		2,290,000			2,911,000
Other accrued liabilities		7,277,000			6,099,000
Total current liabilities		20,383,000			19,034,000
Long-term debt		—			—
Deferred taxes and other noncurrent liabilities		1,271,000			1,579,000
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value, authorized—500,000 shares, issued—none		—			—
Common stock, $.01 par value, authorized—25,000,000 shares, issued—2001—7,742,137 shares, 2000—7,611,116 shares		77,000			76,000
Additional paid-in capital		15,236,000			15,286,000
Stock subscriptions—notes receivable		(397,000	)		(1,374,000	)
Retained earnings		57,974,000			70,573,000
Treasury stock, 2001—2,535,969 and 2000—2,404,027 shares		(31,597,000	)		(31,164,000	)
Accumulated other comprehensive loss		(790,000	)		(717,000	)
Total stockholders' equity		40,503,000			52,680,000
Total liabilities and stockholders' equity	$	62,157,000		$	73,293,000

See accompanying Statement of Accounting Policies and Notes to Consolidated Financial Statements.

⁽⁹⁾: For fiscal 2002 and 2000, consists solely of amounts paid to Mr. Perez pursuant to the Company's Director of Sales Incentive Plan. For fiscal 2001, Mr. Perez received $136,880 pursuant to the Company's Director of Sales, Channel Partner Incentive Plan.
⁽¹⁰⁾: Mr. Rauscher and Mr. Perez received 7,500 and 3,750 shares, respectively, of the Company's Common Stock as a stock bonus vesting on October 19, 2002, three years from the date of grant, subject to both of them remaining as employees of the Company on October 19, 2002. The value of these shares at May 31, 2002 was $5.40 per share, the closing price of the Company's Common Stock on such date; the closing price on the date of grant, October 19, 1999, was $6.625. The aggregate value of the shares as of May 31, 2002 for Mr. Rauscher and Mr. Perez was $40,500 and $20,250, respectively. Mr. Rauscher and Mr. Perez also purchased an equal number of shares, with equal value, on October 19, 1999, with payment made in the form of a promissory note secured by such stock.
⁽¹¹⁾: Includes amounts deferred in the Company's Tax Deferred Savings Plan (the "401(k) Plan") for Messrs. Ampulski, Nogle, Perez, and Rauscher in the amounts of $4,375, $5,085, $1,992 and $3,665, respectively, during the fiscal year ended May 31, 2002. Also includes annual premiums paid by the Company for life insurance policies for Messrs. Ampulski, Beattie, Nogle, Perez and Rauscher in the amounts of $1,290, $2,283, $690, $321 and $450, respectively.
⁽¹²⁾: Includes $7,305 Mr. Beattie received pursuant to the Registered Retirement Savings Plan.

~~TAB~~ Stock ~~PRODUCTS~~Options COGranted During Fiscal 2002. No stock options were granted during fiscal 2002 to any of the persons named in the Summary Compensation table.

Option Exercises and Fiscal 2002 Year-End Values. The following table provides the ~~CONSOLIDATED~~specified ~~STATEMENTS~~information OFconcerning ~~STOCKHOLDERS'~~unexercised ~~EQUITY~~ options held as of May 31, 2002, by the persons named in the Summary Compensation Table. There were no exercises of options by any of the persons named in the Summary Compensation Table during fiscal 2002.

	Common Stock
	Number of Shares Outstanding		Amount		Additional Paid-in Capital			Stock Subscriptions- Notes Receivable			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Gain (Loss)			Total Comprehensive Income (Loss)
Balances, June 1, 1998	5,169,389		$	76,000	$	15,219,000					$	63,885,000		$	(31,365,000	)	$	(2,918,000	)	$	(519,000	)
Net earnings												162,000									162,000
Dividends, $.20 per share												(1,016,000	)
Minimum pension liability changes																		37,000			37,000
Translation adjustment																		(33,000	)		(33,000	)
Stock options exercised and tax benefit on disqualified common stock dispositions	4,500					36,000
Common stock repurchases	(146,200	)													(955,000	)
Balances, May 31, 1999	5,027,689			76,000		15,255,000						63,031,000			(32,320,000	)		(2,914,000	)		166,000
Net earnings												8,574,000									8,574,000
Dividends, $.20 per share												(1,032,000	)
Minimum pension liability changes																		2,381,000			2,381,000
Translation adjustment																		(184,000	)		(184,000	)
Stock options exercised and tax benefit on disqualified common stock dispositions	5,000					30,000
Sale of treasury stock	207,500					1,000			(1,374,000	)					1,374,000
Common stock repurchases	(33,100	)													(218,000	)
Balances, May 31, 2000	5,207,089			76,000		15,286,000			(1,374,000	)		70,573,000			(31,164,000	)		(717,000	)		10,771,000
Net (loss)												(12,084,000	)								(12,084,000	)
Dividends, $.10 per share												(515,000	)
Adjust Treasury Stock to average cost						(1,211,000	)								1,211,000
Translation adjustment																		(73,000	)		(73,000	)
Common stock issued to Tax Deferred Savings Plan	146,579			1,000		290,000									194,000
Cancellation of stock subscription	(147,500	)				861,000			977,000						(1,838,000	)
Warrant issued						10,000
Balances, May 31, 2001	5,206,168		$	77,000	$	15,236,000		$	(397,000	)	$	57,974,000		$	(31,597,000	)	$	(790,000	)	$	(12,157,000	)

FISCAL YEAR-END OPTION VALUES

See accompanying Statement of Accounting Policies and Notes to Consolidated Financial Statements.

	Number of Unexercised Options at 5/31/2002		Value of Unexercised In-The-Money Options at 5/31/02⁽¹⁾
Name	Number of Unexercised Options at 5/31/2002		Value of Unexercised In-The-Money Options at 5/31/02⁽¹⁾
Name	Exercisable	Unexercisable	Exercisable		Unexercisable
Gary W. Ampulski	65,000	195,000	$	212,875	$	638,625
William Beattie	22,142	27,858	$	18,867	$	40,483
Michael J. Nogle	—	25,000	$	—	$	45,000
Carter M. Perez	11,606	28,394	$	17,230	$	51,270
Thomas J. Rauscher	76,963	33,037	$	49,597	$	80,403

⁽¹⁾: Valuation is based on the difference between the option exercise price and the fair market value of the Company's common Stock on May 31, 2002, which was $5.40 per share, based on the closing trade price of the Common Stock on the American Stock Exchange on such date.

~~TAB~~ Employment ~~PRODUCTS~~Contracts ~~CO.~~and Termination of Employment and Change of Control Agreements

The Company has entered into an employment agreement with Gary W. Ampulski, the Company's President and Chief Executive Officer, effective as of ~~CONSOLIDATED~~January 1, ~~STATEMENTS~~2001. OFPursuant ~~CASH~~to ~~FLOW~~ Mr. Ampulski's employment agreement, he receives an annual salary of $350,000 and, commencing with the Company's fiscal year beginning June 1, 2001, he is eligible to receive annual bonuses based upon the Company's achievement of various financial and/or other goals established by the Board of Directors of the Company for up to 100% of his then current annual base salary, with a target bonus equal to 60% of his then current base salary. Pursuant to the employment agreement, on March 1, 2001, Mr. Ampulski was paid a hire-on bonus equal to the bonus he anticipated he would have earned from his previous employer, in the amount of $150,000, of which he was obligated to repay one half to the Company if he would have left the Company voluntarily prior to January 1, 2002. Mr. Ampulski was paid a retention bonus in the amount of $87,500 on December 1, 2001, as provided in the employment agreement because his employment with the Company had not terminated prior to such date.

	Year Ended May 31
	2001			2000			1999
OPERATING ACTIVITIES
Net (loss) earnings	$	(12,084,000	)	$	8,574,000		$	162,000
Adjustments to reconcile net earnings to net cash (required) provided by operating activities:
Depreciation and amortization		9,170,000			4,006,000			4,802,000
Deferred income taxes		(2,518,000	)		904,000			(100,000	)
Gain on sale of business unit		—			(7,967,000	)		—
Gain on sale of property		(1,119,000	)		(7,462,000	)		—
Issuance of common stock to 401(k) Plan		495,000			—			—
Other		(17,000	)		159,000			(88,000	)
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable, net		6,178,000			(3,411,000	)		(1,482,000	)
Inventories		1,738,000			(319,000	)		2,225,000
Tax refund receivable		(4,764,000	)		—			—
Deferred income taxes and other expenses		(713,000	)		1,669,000			(17,000	)
Deferred pension asset		(1,346,000	)		(1,788,000	)		—
Other assets		234,000			985,000			38,000
Accounts payable		792,000			2,170,000			1,389,000
Compensation payable		(621,000	)		731,000			(1,897,000	)
Other accrued liabilities		1,659,000			(11,515,000	)		2,744,000
Net cash (required) provided by operating activities		(2,916,000	)		(13,264,000	)		7,776,000
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net		(1,536,000	)		(2,865,000	)		(5,052,000	)
Purchase of operating assets of Docucon, Inc		—			(5,330,000	)		—
Sale of property		2,900,000			17,803,000			—
Sale of business unit		—			13,405,000			—
Other		83,000			78,000			—
Purchases of short-term investments		(5,997,000	)		(7,006,000	)		(4,428,000	)
Sales of short-term investments		8,202,000			4,777,000			6,383,000
Net cash provided (required) by investing activities		3,652,000			20,862,000			(3,097,000	)
FINANCING ACTIVITIES
Repayment of debt		—			(7,390,000	)		(3,437,000	)
Issuance of common stock		—			31,000			36,000
Purchase of treasury stock		—			(218,000	)		(955,000	)
Dividends paid		(515,000	)		(1,032,000	)		(1,016,000	)
Net cash required by financing activities		(515,000	)		(8,609,000	)		(5,372,000	)
Effect of exchange rate changes on cash		(73,000	)		(237,000	)		466,000
Increase (decrease) in cash and cash equivalents		148,000			(1,248,000	)		(227,000	)
Cash and cash equivalents at beginning of year		5,724,000			6,972,000			7,199,000
Cash and cash equivalents at end of year	$	5,872,000		$	5,724,000		$	6,972,000

Pursuant to the employment agreement, Mr. Ampulski was granted an option to purchase 250,000 shares of the Company's Common Stock on December 14, 2000, the date he was appointed as a member of the Board of Directors of the Company, and also received an automatic option grant of 10,000 shares under the 1996 Outside Directors Stock Option Plan. The Company reimbursed Mr. Ampulski for his reasonable, temporary expenses of commuting between Illinois and San Jose and for his living expenses in the San Jose area from the start of his employment until the Company relocated to Illinois in April 2001. The agreement also provides for a loan by the Company to Mr. Ampulski to enable him to repay the outstanding balance of a loan Mr. Ampulski received from his former employer. For additional information about such loan, see "Certain Relationships and Related Transactions" below.

~~See~~ Except ~~accompanying~~as ~~Statement~~provided in the Change of ~~Accounting~~Control ~~Policies~~Agreement between Mr. Ampulski and ~~Notes~~the Company (as described below), in the event his employment is terminated by the Company without Cause or in the event of his resignation for Good Reason, each as defined in the employment agreement, Mr. Ampulski is entitled to ~~Consolidated~~severance ~~Financial~~payments ~~Statements~~equal to the sum of an amount equal to two times his annual base salary in effect immediately prior to such termination and whichever of the following is applicable as of the date of termination of employment: (a) provided he has completed at least two fiscal years of employment with the Company, an amount equal to two times the average of the annual incentive bonuses actually earned by him for the two fiscal years prior to termination, (b) provided he has completed at least one full fiscal year of employment with the Company but less than two full fiscal years of such employment, an amount equal to two times the annual incentive bonus actually earned by him for the fiscal year preceding the fiscal year of his termination, or (c) provided he has completed less than one full fiscal year of employment with the Company, an amount equal to $300,000. His severance payments would also include accrued vacation pro rated to the date of termination of employment.

In May 2001, Mr. Ampulski's employment agreement was amended to provide that, in the event there has occurred, within the twelve months prior to a termination of his employment without Cause or his resignation for Good Reason, each as defined in the employment agreement, a change in the Board of Directors of the Company as a result of which fewer than a majority of Directors are Incumbent Directors, as defined in the amendment, Mr. Ampulski's stock options granted pursuant to the employment agreement shall become immediately exercisable and vested in full as of the date of his termination of employment.

The Company entered into a change of control agreement with Mr. Ampulski effective as of January 1, 2001, which provides that, in the event that Mr. Ampulski's employment with the Company is terminated as a result of Involuntary Resignation, as defined in the agreement, within three months prior to, upon or within twelve months following a Change of Control, then, in lieu of severance

benefits he would otherwise receive under his employment agreement, he will be entitled to severance payments equal to the sum of an amount equal to two times of his annual base salary in effect immediately prior to the date of his Involuntary Resignation and whichever of the following is applicable as of such date: (a) provided he has completed at least two fiscal years of employment ~~TAB~~with ~~PRODUCTS~~the COCompany, an amount equal to two times of the average of the annual incentive bonuses actually earned by him for the two fiscal years prior to his Involuntary Resignation, (b) provided he has completed at least one full fiscal year of employment with the Company but less than two full fiscal years of such employment, an amount equal to two times of the annual incentive bonus actually earned by him for the fiscal year preceding the fiscal year of his Involuntary Resignation, or (c) provided he has completed less than one full fiscal year of employment with the Company, an amount equal to $300,000. ~~STATEMENT~~ OFFor ~~ACCOUNTING~~a ~~POLICIES~~ period of eighteen months following his Involuntary Resignation, the Company shall reimburse Mr. Ampulski for any premiums paid by him for continued group health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). In addition, in the event of a Change of Control, the options granted to Mr. Ampulski pursuant to his employment agreement shall become immediately exercisable and vested in full as of the date that is ten days prior to the Change of Control. Under this agreement, a change of control is defined as the occurrence of: (a) any person or entity directly or indirectly acquiring beneficial ownership of 50% or more of the total voting power represented by the Company's outstanding voting securities; (b) a merger or consolidation of the Company with any other corporation involving the transfer of securities representing 50% or more of the total voting power represented by the Company's outstanding securities immediately prior to such merger or consolidation; (c) the complete liquidation of the Company; or (d) the sale or disposition by the Company of all or substantially all of the Company's assets, unless the Company remains an operating business and a going concern, and with respect to the acceleration of his options, the Company continues his options in effect.

The Company has entered into a form of change of control agreement with certain of its current executive officers who were hired by the Company prior to December 2000. The agreements provide that if within one month prior to or twelve months following a Change of Control of the Company, such executive officer's ~~significant~~employment ~~accounting~~is ~~policies~~terminated ~~are~~as ~~summarized~~a ~~below~~result of Involuntary Termination, as defined in the agreements, such executive officer will be entitled to: ~~assist~~(a) all salary, accrued but unused vacation earned through the ~~reader~~date of the executive officer's termination and the executive officer's target bonus for the year in ~~reviewing~~which termination occurs, pro rated through the ~~financial~~date ~~statements~~of termination; (b) severance pay in an amount equal to 150% of his or her annual base salary at the time of such termination, plus 150% of the executive officer's annual bonus at the "on target" level for the fiscal year in which the executive officer is terminated, payable in lump sum within 30 days of termination; and (c) for a period of 12 months from the date of termination or until commencement of new employment, whichever is earlier, reimbursement for COBRA premiums paid by him or her for continued group health insurance coverage. The agreements provide that the executive officer shall be entitled to acceleration of vesting for such executive officer's stock options as provided under the Company's 1991 Stock Option Plan or any applicable successor plan. A Change of Control includes a change in the board of directors of the Company as a result of which fewer than a majority of directors are incumbent directors. Under the agreements, a Change of Control is defined as the occurrence of: (a) any person or entity directly or indirectly acquiring beneficial ownership of 50% or more of the total voting power represented by the Company's outstanding voting securities; (b) a merger or consolidation of the Company with any other ~~data~~corporation ~~contained~~involving the transfer of securities representing 50% or more of the total voting power represented by the Company's outstanding securities immediately prior to such merger or consolidation; (c) the complete liquidation of the Company; (d) the sale or disposition by the Company of all or substantially all of the Company's assets; or (e) a change in the Board of Directors of the Company within a two-year period as a result of which fewer than a majority of the ~~consolidated~~directors ~~financial~~are ~~statements~~Incumbent Directors. Incumbent Directors include directors as of the effective date of the agreement or a director who is appointed or nominated by the Board of Directors or its nominating committee and whose

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany transactions have been eliminated in consolidation.

Estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as of the dates and for the periods presented. Such estimates include the allowance for doubtful accounts, restructuring reserves, inventory valuation, recoverability of deferred tax assets and obligations for postretirement health care and pension benefits. Actual results could differ from those estimates.

Translation of Foreign Currencies—Operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency for each subsidiary. Assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect as of the balance sheet dates, and results of operations for each subsidiary are translated using the average rates in effect for the periods presented. Translation adjustments are reported as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in net earnings.

Cash and Cash Equivalents are highly liquid investments purchased with an original maturity of three months or less.

Short-term Investments represent debt securities, which are stated at fair value. The difference between amortized cost (cost adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments to interest income) and fair value representing unrealized holding gains or losses, if material, are recorded as a separate component of stockholders' equity until realized. While the Company's intent is to hold debt securities to maturity, they are classified as available-for-sale because the sale of such securities may be required prior to maturity. Any gains and losses on the sale of debt securities are determined on a specific identification basis. Unrealized holding gains and losses were not material for any periods presented.

Inventories are valued at the lower of cost or market. Cost of merchandise inventories purchased for resale is determined on the last-in, first-out (LIFO) method for domestic inventories, which was approximately $720,000 at May 31, 2001 ($975,000 at May 31, 2000). Cost of the remainder of the inventories is determined on the first-in, first-out (FIFO) method.

Property, Plant and Equipment, including significant improvements to existing facilities are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, which are as follows: Land improvements 10-30 years; buildings 20-50 years; machinery and equipment 3-15 years; furniture and fixtures 3-10 years. Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Goodwill represents the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Goodwill is being amortized on a straight-line basis over periods not exceeding 25 years. Goodwill amortization amounted to $4,832,000, $259,000 and $496,000 in fiscal years 2001, 2000 and 1999, respectively. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Atnomination ~~May 31,~~or ~~2001~~appointment is approved by the ~~Company~~affirmative ~~wrote-off~~votes of at least a majority of the ~~remaining~~Incumbent ~~goodwill~~Directors ~~from~~at the ~~acquisition~~time of ~~its~~such ~~imaging~~appointment ~~services~~or ~~subsidiary~~nomination, not including an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the ~~amount~~election of ~~$3.7 million~~directors ~~due~~ to ~~its~~the ~~impairment~~Company.

~~Revenue~~ The Company ~~Recognition—Revenues~~has onentered ~~product~~into ~~sales~~a ~~are~~form ~~recognized~~of ~~upon~~change ~~product~~of ~~shipment~~control agreement with each of its executive officers who were hired by the Company after December 2000, ~~except~~other ~~mobile~~than Mr. Ampulski ~~filing~~who ~~equipment~~entered into the change of control agreement described above. ~~Revenue~~The agreements provide that if within three months prior to, upon or within twelve months following a Change of ~~related~~Control of the Company, such executive officer's employment is terminated as a result of Involuntary Termination, as defined in the agreement, such executive officer will be entitled to ~~mobile~~severance payments ~~equipment~~equal to the sum of either 50% or 100%, as specified in the ~~installation~~agreement, of ~~products~~the executive officer's annual base salary in effect immediately prior to the date of Involuntary Termination and whichever ~~professional~~of ~~services~~the following is ~~recognized~~applicable ~~upon~~as ~~completion~~of such date: (a) provided the executive officer has completed at least two fiscal years of employment with the Company, an amount equal to 50% or 100%, as specified in the agreement, of the average of the incentive bonuses actually earned by the executive officer for the two fiscal years prior to such Involuntary Termination, (b) provided the executive officer has completed at least one full fiscal year of employment with the Company but less than two full fiscal years of such employment, an amount equal to 50% or 100%, as specified in the agreement, of the annual incentive bonus actually earned by the executive officer for the fiscal year preceding the fiscal year of such Involuntary Termination, or (c) provided the executive officer has completed less than one full fiscal year of employment with the Company, an amount equal to 50% or 100%, as specified in the agreement, of the executive officer's target annual incentive bonus, if any. ~~Imaging~~The ~~services~~agreements ~~revenues~~provide ~~are~~that ~~recognized~~such onexecutive officers shall be entitled to receive accrued vacation to the date of such executive officer's Involuntary Termination and, for a ~~percentage~~period of ~~completion~~up ~~method~~to twelve months after Involuntary Termination of the executive officer but ending upon commencement of new employment, the Company shall reimburse the executive officer for any COBRA premiums for continued group health insurance coverage. In the event of a Change of Control, the options to purchase Common Stock currently held by such executive officer shall ~~Equipment~~become immediately ~~service~~exercisable and ~~software~~vested ~~support~~in ~~contract~~full ~~revenues~~as ~~are~~of ~~recognized~~the ~~ratably~~date ~~over~~that is ten days prior to the ~~contractual~~Change ~~period~~of orControl. The agreements further provide that in the event there has occurred within the twelve months prior to a termination of the executive officer's employment as a result of Involuntary Termination, a change in the ~~services~~board of directors of the Company as a result of which fewer than a majority of Directors are ~~performed~~Incumbent Directors, as defined in the agreements, the executive officer shall be entitled to receive the severance benefits described above and the options currently held by such executive officer shall become immediately exercisable and vested in full as of the date of the Involuntary Termination. Under the agreements, a Change of Control is defined as the occurrence of: (a) any person or entity directly or indirectly acquiring beneficial ownership of 50% or more of the total voting power represented by the Company's outstanding voting securities; (b) a merger or consolidation of the Company with any other corporation involving the transfer of securities representing 50% or more of the total voting power represented by the Company's outstanding securities immediately prior to such merger or consolidation; (c) the complete liquidation of the Company; or (d) the sale or disposition by the Company of all or substantially all of the Company's assets, unless the Company remains an operating business and a going concern, and with respect to the acceleration of the executive officer's options, the Company continues such options in effect.

~~Earnings~~ Options granted ~~Per~~under ~~Share~~the ~~(EPS)~~Company's 1991 Stock Option Plan and 2001 Nonstatutory Stock Option Plan contain provisions pursuant to which unexercised options become immediately exercisable upon a "Transfer of Control" and terminate to the extent they are ~~computed~~not exercised as ~~basic~~of ~~EPS~~the ~~using~~consummation of the ~~average~~Transfer ~~number~~ of ~~common~~Control. ~~shares~~Both ~~outstanding~~such ~~and~~plans ~~diluted~~define ~~EPS~~a ~~using~~Transfer of Control as: (a) the ~~average~~direct ~~number~~or indirect sale or exchange by the stockholders of ~~common~~the ~~and~~Company ~~dilutive~~of ~~common~~all ~~equivalent~~or ~~shares~~substantially ~~outstanding,~~all inof ~~accordance~~the ~~with~~stock ~~SFAS 128~~of ~~(see~~the ~~Note 12~~Company where such stockholders do not retain at least a majority of the voting stock of the Company after such sale or exchange; (b). a merger or consolidation of the Company into or with

Stockholders' Equity—Shares of the Company, which are repurchased, are treated as Treasury stock and are accounted for under the cost method.

Income Taxes—Deferred income taxes are provided for temporary differences between financial statements and income tax reporting, in accordance with SFAS 109.

Stock-based Compensation—The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, Accounting for Stock Issued to Employees.

Comprehensive Income—Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income consists of its reported net income or loss, adjustments to the minimum defined benefit retirement obligation and the change in the cumulative foreign currency translation adjustment during a period.

Segment Reporting—The Company reports certain financial and descriptive information about operating segments profit or loss, certain specific revenue and expense items and segment assets as required by Financial Accounting Standards Board Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information."

Concentrations of Credit Risk—Financial instruments, which potentially subject the Company to a concentration of credit risk, principally consist of cash and cash equivalents, short-term investments and trade accounts receivable. The Company places its cash and cash equivalents and short-term investments with what it believes are high credit quality financial institutions. The Company sells its products primarily to companies in North America, Europe and Australia. The Company maintains reserves for potential credit losses, but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area.

Reclassifications—Certain reclassifications have been made to the 2000 and 1999 financial statements to conform to the 2001 presentation.

Recently Issued Accounting Standards—In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company anticipates that the adoption of SFAS No. 133 will not have a material impact on its financial position, results of operations or cash flows. The Company will adopt SFAS No. 133 on June 1, 2001.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 ("SAB No. 101"), Revenue Recognition in Financial Statements, which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC and was effective the first fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 requires companies to report any changes in revenue recognition as a cumulative change in

~~accounting~~another ~~principle~~corporation atas a result of which stockholders of the ~~time~~Company before such merger or consolidation shall own less than 50% of ~~implementation~~the invoting ~~accordance~~securities ~~with~~of ~~Accounting~~the ~~Principles~~surviving ~~Board~~corporation; ~~Opinion~~or (c) the ~~20,~~sale ~~Accounting~~of ~~Changes~~all or substantially all of the Company's assets. ~~Subsequently~~Under the 2001 Stock Option Plan, ~~SAB~~the ~~No. 101A~~Board ~~and~~of ~~101B~~Directors ~~were~~has ~~issued~~discretion to ~~delay~~provide for acceleration of the vesting of any ~~implementation~~option in connection with a Change of ~~SAB~~Control, Noas defined in the plan, or such terms as the Board determines. ~~101.~~

Director Compensation For Last Fiscal Year. ~~After~~The Company pays each of its outside directors $15,000 ~~evaluation~~per year, plus an additional $1,000 for each Board and Committee meeting attended, as compensation for their services as members of the Board of Directors of the Company's. ~~revenue~~An ~~recognition~~additional ~~policies~~$500 ~~compared~~is paid to each ~~the~~Committee ~~guidance~~Chairman infor ~~SAB~~each Nocommittee meeting attended. During the fiscal year ended May ~~101~~31, 2002, the ~~Company~~Chairman ~~has~~of ~~changed~~the ~~its~~Board ~~accounting~~of ~~policy~~the ~~for~~Company ~~revenue~~received ~~from~~an ~~mobile file~~additional ~~storage~~$30,000 ~~equipment.~~for ~~Adoption~~his ofservices to the ~~change~~Company in ~~accounting~~that capacity. In addition, inthe Company's 1996 Outside Directors Stock Option Plan (the ~~third~~"Directors ~~quarter~~Plan") provides for initial grants of ~~fiscal~~options ~~year~~to ~~2001~~purchase 10,000 ~~resulted~~shares inof ~~revenue~~the Common ~~being~~Stock ~~recorded~~of ~~only~~the ~~after~~Company ~~installation~~to ofnon-employee directors at the ~~equipment~~fair market value on ~~customer~~the ~~premises rather~~date ~~than~~of ~~upon~~grant. ~~shipment,~~The ~~thus~~Directors ~~postponing~~Plan ~~revenue~~further ~~recognition~~provides byfor anthe ~~average~~automatic annual grant of ~~two~~an ~~months.~~additional option ~~The~~to ~~change~~purchase in2,000 ~~accounting~~shares ~~necessitated~~of the ~~restatement~~Common Stock of the ~~first~~Company ~~and~~on ~~second~~the ~~quarter~~date ~~10Q~~of ~~filings~~each ~~to properly~~annual ~~reflect~~meeting of stockholders after adoption of the ~~beginning~~plan to each non-employee director of the Company ~~year~~who ~~recording~~remains a member of the ~~cumulative~~Board ~~effect~~of onDirectors ~~prior~~of ~~years~~the ~~(to~~Company. ~~May~~Mr. 31Myers, ~~2000)~~Mr. Heimbuck ofand aMr. Wright ~~change~~also received in ~~accounting~~fiscal ~~principle~~2002, $20,000 and $10,000 and $10,000, respectively, in consulting fees for services performed on the Special Committee of the Board of Directors.

~~In June 2001,~~ITEM ~~the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No~~12. ~~142~~ SECURITY ~~("SFAS~~OWNERSHIP ~~No. 142"),~~OF ~~Goodwill~~CERTAIN ~~and~~BENEFICIAL ~~Other~~OWNERS ~~Intangible Assets.~~AND SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. The Company will adopt SFAS No. 142 no later than June 1, 2002. Upon adoption of SFAS No. 142, the Company will stop the amortization of goodwill that resulted from business combinations initiated prior to the adoption of SFAS No. 141, Business Combinations. The Company will evaluate goodwill under the SFAS No. 142 transitional impairment test and has not yet determined whether or not there is an impairment loss. Any transitional impairment loss will be recognized as a change in accounting principle. MANAGEMENT

The following table sets forth certain information, as of July 31, 2002 with respect to the beneficial ownership of the Company's common stock by (a) all persons known by the Company to be the beneficial owners of more than 5% of the outstanding common stock of the Company, (b) each director of the Company, (c) each of the five most highly compensated executive officers, and (d) all current directors and executive officers as a group.

Name and Address of Beneficial Owners⁽¹⁾	Number of Shares⁽²⁾	Percent⁽³⁾
Principal Stockholders
Tab Products Co. Tax Deferred Savings Plan and Trust 935 Lakeview Pkwy., Suite 195 Vernon Hills, IL 60061	676,824⁽⁴⁾	13.2	%
Tab Products Co. Pension Plan and Trust 935 Lakeview Pkwy., Suite 195 Vernon Hills, IL 60061	48,600⁽⁵⁾	*
Steel Partners II, L.P. Warren G. Lichtenstein 150 East 52^nd Street, 21^st Floor New York, NY 10022	518,400⁽⁶⁾	10.1	%
Dimensional Fund Advisors Inc. 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401	419,800⁽⁷⁾	8.2	%

TAB PRODUCTS CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ROI Capital Management, Inc., Mark T. Boyer and Mitchell J. Soboleski 17 E. Sir Francis Drake Boulevard, Suite 225 Larkspur, CA 94939	367,800⁽⁸⁾	7.2	%
Phillip Ean Cohen, Hamilton Sorter Co., Inc., HS Morgan Corporation, HS Morgan Limited Partnership, Thaddeus S. Jaroszewicz, Watkins C. Johnston, Mark J. Dessy, MS TP Limited Partnership, MSTP, LLC, T Acquisition Co. and T Acquisition L.P. c/o Hamilton Sorter, Inc. 3158 Production Drive Fairfield, OH 45014	345,000⁽⁹⁾	6.7	%
JANA Partners LLC 536 Pacific Avenue San Francisco, CA 94133	266,300⁽¹⁰⁾	5.2	%
Directors and Executive Officers
Gary W. Ampulski	103,442⁽¹¹⁾	2.0	%
Kathryn S. Hanson	20,500⁽¹²⁾	*
Jeffrey A. Heimbuck	5,000⁽¹³⁾	*
Warren G. Lichtenstein	518,400⁽⁶⁾	10.1	%
Jerry K. Myers	28,000⁽¹⁴⁾	*
Hans A. Wolf	201,174⁽¹⁵⁾	3.9	%
David W. Wright	197,100⁽¹⁶⁾	3.8	%
William Beattie	25,320⁽¹⁷⁾	*
Michael J. Nogle	11,404⁽¹⁸⁾	*
Carter M. Perez	23,855⁽¹⁹⁾	*
Thomas J. Rauscher	99,607⁽²⁰⁾	1.9	%
Directors and executive officers as a group (15 persons)	1,249,576⁽²¹⁾	23.1	%

*: Less than 1%
⁽¹⁾: Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable. Unless otherwise indicated above, the principal business address of each executive officer and director of the Company is c/o Tab Products Co., 935 Lakeview Pkwy., Suite 195, Vernon Hills, Illinois 60061.
⁽²⁾: The number and percentage of shares beneficially owned are determined under rules of the Securities and Exchange Commission and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also

1. Short-Term Investments

The Company's short-term investments have been classified as available-for-sale securities. The cost of available-for-sale securities at May 31, 2001 and May 31, 2000 are presented in the table that follows. Available-for-sale securities are classified as current assets and generally mature within three months. For each category of investment securities, the cost approximates fair market value.

	May 31
	2001		2000
Corporate obligations	$	2,269,000	$	4,154,000
U.S. Government obligations		696,000		1,016,000
	$	2,965,000	$	5,170,000

2. Inventories

	May 31
	2001		2000
Finished goods	$	1,443,000	$	2,164,000
Work in process		272,000		273,000
Raw material		3,389 000		4,405,000
	$	5,104,000	$	6,842,000

If the inventories for which the LIFO method is used were valued under the FIFO method, such inventories would have been higher by $378,000 at May 31, 2001 and $518,000 at May 31, 2000. The change in certain LIFO inventory increased earnings before income tax by $140,000, decreased earnings before income tax by $42,000 in 2000 and increased earnings before income tax by $287,000 in 1999.

3. Property, Plant and Equipment

	May 31
	2001			2000
Land and improvements	$	366,000		$	965,000
Buildings and improvements		7,682,000			9,554,000
Machinery and equipment		16,611,000			17,112,000
Furniture and fixtures		9,300,000			12,636,000
Leasehold improvements		473,000			831,000
		34,432,000			41,098,000
Accumulated depreciation and amortization		(26,916,000	)		(28,845,000	)
	$	7,516,000		$	12,253,000

4. Long-Term Debt and Revolving Line of Credit

During fiscal year 2000 the Company paid off its long-term debt in the amount of $7,390,000 and had no long-term debt outstanding as of May 31, 2001 and May 31, 2000.

any ~~The~~shares ~~Company~~that ~~has a secured revolving line of credit of $5 million with a bank as of May 31, 2001, which will expire on October 31, 2001. Borrowings are available at~~ the ~~prime~~individual ~~rate~~has ~~plus one-half percent. The Company had no borrowings outstanding under this line as of May 31, 2001. Under~~ the ~~line~~right ~~of credit, the Company must maintain certain financial covenants including a minimum level of tangible net worth, a minimum quick asset ratio and a minimum ratio of total liabilities~~ to ~~tangible~~acquire ~~net~~within ~~worth. The Company was not in compliance with the tangible effective net worth covenant at May~~60 ~~31,~~days ~~2001. The Company received a waiver~~ of ~~the covenant violation from the bank on August~~July 1331, ~~2001.~~2002 ~~The~~through ~~Company expects to renegotiate~~ the ~~line~~exercise of ~~credit~~any ~~agreement~~stock ~~with~~option ~~the~~or ~~bank~~other ~~to lower the tangible effective net worth covenant and received a letter from the bank dated August 13, 2001 confirming the bank's intentions to amend the agreement~~right.

⁽³⁾: Calculated on the basis of 5,123,915 shares of common stock outstanding as of July 31, 2002, provided that any additional shares of common stock that a stockholder has the right to acquire within 60 days after July 31, 2002 are deemed to be outstanding for the purpose of calculating that stockholder's percentage beneficial ownership.
⁽⁴⁾: Based on a monthly report dated July 31, 2002, prepared by the Charles Schwab Trust Company, the trustee of the Tab Products Co. Tax Deferred Savings Plan and Trust (the "401(k) Plan"). All of the shares owned by the 401(k) Plan are allocated among the accounts of the 401(k) Plan participants. Pursuant to the 401(k) Plan, each participant is entitled to direct the trustee with respect to all voting shares allocated to his or her account.
⁽⁵⁾: Based on a monthly report dated July 2002, prepared by the Wells Fargo Bank, N.A., the trustee of the Tab Products Co. Pension Plan and Trust (the "Pension Plan"). Pursuant to the Pension Plan Trust Agreement, the shares held in the Pension Plan shall be voted by the trustee according to written directions it has received from the Employee Benefits Committee.
⁽⁶⁾: Based solely on Amendment No. 4 to Schedule 13D filed by Steel Partners II, L.P. and Warren G. Lichtenstein on August 14, 2002, and includes 515,900 shares of the Company's common stock reported to be beneficially owned by Steel Partners II, L.P. and Mr. Lichtenstein and 2,500 shares that are presently exercisable or that will become exercisable within 60 days of July 31, 2002. Mr. Lichtenstein reported having sole dispositive and sole voting power with respect to these shares by virtue of his authority to vote and dispose of them as the sole executive officer and managing member of Steel Partners II, L.P.
⁽⁷⁾: Based solely on information contained in Amendment No. 1 to Schedule 13G filed February 12, 2002, and includes 419,800 shares of the Company's common stock reported to be held by Dimensional Fund Advisors Inc. but which are owned by certain investment companies, trusts and accounts for which Dimensional Fund Advisors serves as investment advisor or manager. Dimensional Fund Advisors disclaims beneficial ownership of these shares.
⁽⁸⁾: Based solely on information contained in Amendment No. 4 to Schedule 13G filed February 15, 2002, and includes 367,800 shares of the Company's common stock reported to be held by ROI Capital Management, Inc., Mark T. Boyer and Mitchell J. Soboleski.
⁽⁹⁾: Based solely on Amendment No. 17 to Schedule 13D filed July 31, 2002, and includes 338,900 shares of the Company's common stock beneficially owned by each of Phillip Ean Cohen, Hamilton Sorter Co., Inc., HS Morgan Corporation, HS Morgan Limited Partnership, MS TP Limited Partnership, MSTP, LLC, T Acquisition Co. and T. Acquisition L.P., 100 shares beneficially owned by Thaddeus S. Jaroszewicz, 1,000 shares beneficially owned by Watkins C. Johnston and 5,000 shares beneficially owned by Mark J. Dessy. In addition, this number of shares does not include 915,545 shares of TAB's common stock and options to acquire 405,000 shares of TAB's common stock that are subject to the support/voting agreements described above under "Voting Agreements." T Acquisition L.P. disclaims that it beneficially owns the shares that are subject to these support/voting agreements.
⁽¹⁰⁾: Based solely on information contained in the Schedule 13D filed October 25, 2001, and includes 266,300 shares of the Company's common stock reported to be beneficially owned by JANA Partners LLC.
⁽¹¹⁾: Includes 65,000 shares that may be acquired upon the exercise of options that are presently exercisable, 5,400 shares held by Mr. Ampulski's wife, 1,500 shares held by Mr. Ampulski's stepson and 500 shares held by Mr. Ampulski's granddaughter. Also, includes 8,842 shares

Cash paid for interest which approximates interest expense was $17,000, $615,000 and $967,000 for fiscal years 2001, 2000 and 1999, respectively.

5. Other Accrued Liabilities

	May 31
	2001		2000
Payroll and related benefits	$	2,253,000	$	2,347,000
Dividends		—		260,000
Amount due to independent sales reps		1,555,000		1,196,000
Other		3,469,000		2,296,000
	$	7,277,000	$	6,099,000

6. Income Taxes

The (benefit) provision for income taxes is comprised of the following:

	Year Ended May 31
	2001			2000			1999
(Benefit) provision for income taxes:
Current:
Federal	$	(4,566,000	)	$	4,970,000		$	46,000
State		—			1,480,000			2,000
Foreign		472,000			726,000			482,000
		(4,094,000	)		7,176,000			530,000
Deferred:
Federal		(1,392,000	)		(711,000	)		(51,000	)
State		(1,156,000	)		(176,000	)		29,000
Foreign		30,000			(17,000	)		(78,000	)
		(2,518,000	)		(904,000	)		(100,000	)
	$	(6,612,000	)	$	6,272,000		$	430,000

~~The~~allocated ~~reconciliation~~to ~~between~~Mr. Ampulski's account under the ~~Federal~~401(k) ~~statutory~~Plan ~~rate~~as ~~and~~of July 31, 2002, based on a recent monthly report prepared by the ~~Company's~~recordkeeper ~~effective~~under ~~tax~~the ~~rate~~401(k) isPlan. Mr. Ampulski may direct the trustee of the 401(k) Plan with respect to the voting of these shares as ~~follows:~~described in footnote 4 above. These shares are also included in the number of shares shown as owned by Tab Products Co. Tax Deferred Savings Plan and Trust.

⁽¹²⁾: Includes 18,000 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002.
⁽¹³⁾: Consists solely of 5,000 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002.
⁽¹⁴⁾: Includes 18,000 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002.
⁽¹⁵⁾: Includes 42,874 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002.
⁽¹⁶⁾: The shares attributed to Mr. Wright include 169,500 shares of the Company's common stock beneficially owned by Henry Partners L.P., 25,100 shares of the Company's common stock beneficially owned by Matthew Partners L.P. and 2,500 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002. Mr. Wright is the President and managing member of Canine Partners, LLC, the general partner of Henry Investment Trust, L.P., the general partner of, and investment advisor to, Henry Partners, L.P. and Matthew Partners, L.P. He has sole dispositive and sole voting power with respect to the shares of the Company's common stock held by Henry Partners, L.P. and Matthew Partners, L.P.
⁽¹⁷⁾: Includes 24,820 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002.
⁽¹⁸⁾: Includes 9,375 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002. Also includes 1,429 shares allocated to Mr. Nogle's account under the 401(k) Plan as of July 31, 2002, based on recent monthly report prepared by the recordkeeper under the 401(k) Plan. Mr. Nogle may direct the trustee of the 401(k) Plan with respect to the voting of these shares as described in footnote 4 above. These shares are also included in the number of shares shown as owned by Tab Products Co. Tax Deferred Savings Plan and Trust.
⁽¹⁹⁾: Includes 12,722 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002. Also includes 2,907 shares allocated to Mr. Perez's account under the 401(k) Plan as of July 31, 2002, based on a recent monthly report prepared by the recordkeeper under the 401(k) Plan. Mr. Perez may direct the trustee of the 401(k) Plan with respect to the voting of these shares as described in footnote 4 above. These shares are also included in the number of shares shown as owned by Tab Products Co. Tax Deferred Savings Plan and Trust.
⁽²⁰⁾: Includes 79,640 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002. Also includes 4,667 shares allocated to Mr. Rauscher's account under the 401(k) Plan as of July 31, 2002, based upon a recent monthly report prepared by the recordkeeper under the 401(k) Plan. Mr. Rauscher may direct the trustee of the 401(k) Plan with respect to the voting of these shares as described in footnote 4 above. These shares are also included in the number of shares shown as owned by Tab Products Co. Tax Deferred Savings Plan and Trust.

	2001		2000		1999
Federal income taxes at statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.1		4.8		3.4
Non-deductible goodwill	(.4	)	.6		26.1
Foreign taxes	.4		1.6		5.9
Other	(3.1	)	.2		2.2
Effective tax rate	36.0	%	42.2	%	72.6	%

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax assets and liabilities are as follows:

	May 31
	2001			2000
Deferred Tax Assets
Post-retirement benefit obligation	$	517,000		$	528,000
Reserves not currently deductible		1,355,000			1,516,000
Vacation accrual		340,000			428,000
Allowance for doubtful accounts		402,000			323,000
Pension obligation		—			—
Unrealized foreign exchange losses		790,000			537,000
Goodwill		1,869,000			—
Differences between book and tax basis of property		58,000			—
Net operating loss carryforward		1,246,000			—
Other		—			315,000
		6,577,000			3,647,000
Deferred Tax Liabilities
Differences between book and tax basis of property		—			(604,000	)
Pension obligation		(1,273,000	)		(741,000	)
Other		(448,000	)		(174,000	)
		(1,721,000	)		(1,519,000	)
Net deferred tax assets	$	4,856,000		$	2,128,000

	May 31
	2001		2000
Net deferred tax assets (liabilities) were comprised of the following:
Current assets	$	3,002,000	$	2,276,000
Non-current assets (liabilities)		1,854,000		(148,000	)
Net deferred tax assets	$	4,856,000	$	2,128,000

The Company has not provided for income taxes on undistributed earnings of certain foreign subsidiaries, which the Company intends to reinvest indefinitely. The Company does not believe a valuation allowance for deferred tax assets is necessary. Cash payments for income taxes were: $62,000, $6,997,000 and $50,000 in 2001, 2000 and 1999, respectively.

⁽²¹⁾: Includes 287,931 shares that may be acquired upon the exercise of options that are presently exercisable or that will become exercisable within 60 days of July 31, 2002. Also includes 22,319 shares allocated to individual executive officer's accounts under the 401(k) Plan as of July 31, 2002, based upon a recent monthly report prepared by the recordkeeper under the 401(k) Plan. These executive officers may direct the trustee of the 401(k) Plan with respect to the voting of these shares as described in footnote 4 above. These shares are also included in the number of shares shown as owned by Tab Products Co. Tax Deferred Savings Plan and Trust.

7 Equity Compensation Plan Information. The ~~Employee~~following ~~Benefit~~table ~~Plans~~ summarizes share and exercise price information for the Company's equity compensation plans as of May 31, 2002.

The Company maintains a defined benefit pension plan for substantially all domestic employees. Plan benefits are based on compensation and length of service and provide for normal retirement at age 65. The Company's policy is to make annual contributions to the pension plan between the ERISA minimum and the maximum tax-deductible amount allowed.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	419,750	$	4.73	300,000
Equity compensation plans not approved by security holders	378,000	$	2.61	93,000

Total	797,750		N/A	393,000

~~In fiscal~~ITEM ~~1999 the Company suspended its defined benefit pension plan to limit both new participation and further pension credit for current participants~~13. CERTAIN ~~The~~RELATIONSHIPS ~~result~~AND ofRELATED the suspension is that after March 31, 1999, no new participants have been eligible to join the plan. Also, after March 31, 1999, active participants in the plan do not receive any further pension benefit credits. Active participants in the plan as of March 31, 1999, will be eligible, upon retirement, to receive a pension based upon the pension credits they have earned through March 31, 1999. Other than these changes, the pension plan remains the same. TRANSACTIONS

Certain Relationships and Related Transactions. InPursuant to the employment agreement between the ~~fiscal~~Company and Gary W. Ampulski described above in "Employment Contracts and Termination of Employment and Change of Control Arrangements," in March 2001, the Company ~~paid~~loaned ~~benefits~~Mr. Ampulski the toprincipal ~~107~~sum ~~terminated~~of ~~vested~~$139,503 ~~participants~~to inenable him to repay the ~~form~~outstanding balance of ~~lump~~a ~~sum~~loan payable to his former employer. The loan is secured by Mr. Ampulski's home; it bears interest at the rate of 4.3% per annum and principal and interest payments, ~~which~~will ~~resulted~~be inmade through payroll deductions on a ~~settlement~~semi-monthly ~~loss~~basis ofbeginning ~~approximately~~March 15, ~~$93~~2001 and ending February 28,~~000~~ 2004.

In October 1999, the Company implemented a Stock Purchase and Stock Bonus Program ("Program") with certain executive officers and key employees of the Company. Each participating employee borrowed funds from the Company to acquire a specified number of common shares. In addition, an equivalent number of shares of Common Stock was granted to each individual as a restricted stock bonus. The restricted stock bonus vests after three years if the participant remains employed by the Company throughout that period. The note and accrued interest will be forgiven after three ~~plan's~~years ~~assets~~if ~~are~~the ~~invested~~participant continues employment with the Company throughout that period. If the participant ceases to be employed by the Company during the three year period after acquiring the Program shares, the participant will forfeit to the Company the shares granted as a restricted stock bonus and the note accelerates and becomes payable in ~~short-term~~full. ~~money~~The ~~market~~Company ~~instruments~~issued an aggregate of 207,500 shares ~~fixed~~of ~~income~~treasury ~~securities~~stock under the Program. Under the Program, all of such shares are held by the Company as collateral to secure the notes receivable. As of May 31, 2002, executive officers held an aggregate of 11,250 shares issued as restricted stock, restricted bonuses and ~~common~~11,250 ~~stocks~~shares purchased with promissory notes. A total of 177,500 shares subject to the Program have been reacquired by the Company on termination of employment of participants.

The following table sets forth the plans funded status:

	2001			2000
Changes in Benefit Obligation:
Benefit obligation at beginning of year	$	23,900,000		$	25,305,000
Service cost		—			—
Interest cost		1,812,000			1,771,000
Settlements		(136,000	)		—
Actuarial loss		175,000			514,000
Assumption change		829,000			(2,665,000	)
Benefits paid		(1,389,000	)		(1,025,000	)
Benefit obligation at end of year		25,191,000			23,900,000
Changes in Plan Assets:
Fair value at beginning of year		31,914,000			22,973,000
Actual return on plan assets		148,000			9,966,000
Settlements		(261,000	)		—
Benefits paid		(1,389,000	)		(1,025,000	)
Fair value at end of year		30,412,000			31,914,000
Funded status		5,221,000			8,014,000
Unrecognized actuarial (gain)		(2,087,000	)		(6,226,000	)
Net amount recognized	$	3,134,000		$	1,788,000
Prepaid benefit cost	$	3,134,000		$	1,788,000
Accrued benefit liability		—			—
Accumulated other comprehensive income		—			—
Net amount recognized	$	3,134,000		$	1,788,000

	2001		2000
Weighted-average assumptions as of May 31:
Discount rate	7.50	%	7.75	%
Expected return on assets	9.50	%	9.50	%
Rate of compensation increase	5.00	%	5.00	%

PART IV

~~Net periodic~~ITEM ~~pension (income) cost was $(1~~14. EXHIBITS,~~347,000),~~ ~~$(152,000)~~FINANCIAL ~~and~~STATEMENT ~~$1,133,000~~SCHEDULES ~~for~~AND ~~fiscal~~REPORTS ~~years~~ON ~~2001,~~FORM ~~2000 and 1999, respectively, and included the following components.~~ 8-K

A.: The following documents are filed as part of this report:

	2001			2000			1999
Components of net periodic pension (income) cost:
Service cost	$	—		$	—		$	712,000
Interest cost		1,812,000			1,771,000			1,832,000
Expected return on plan assets		(2,966,000	)		(2,134,000	)		(2,185,000	)
Amortization of unrecognized transition obligation		—			—			18,000
Prior service amortization		—			—			16,000
Recognized net actuarial (gain) loss		(286,000	)		211,000			363,000
Curtailment loss		—			—			377,000
Settlement loss		93,000			—			—
Net periodic pension (income) cost	$	(1,347,000	)	$	(152,000	)	$	1,133,000

1. Consolidated Financial Statements

The Company also provides a 401(k) Plan (tax deferred savings plan) for its domestic employees. The plan provides that the Company make contributions in either cash or common stock, at its option, equal to 50% of contributions made by participating employees up to a maximum of 3% of employee's salary. The plan also provides for additional Company contributions up to a maximum of 75% of participating employees' contributions, for each fiscal year in which net earnings are 5% or more of revenues. Company contributions charged to earnings were $597,000, $820,000 and $449,000 for fiscal years 2001, 2000 and 1999, respectively. The plan was enhanced effective June 1, 1999 to provide for an increase in the Company match to a maximum of 3% of employee's salary from 2%. Certain additional transitional contributions were made to employee accounts during fiscal years 2001 and 2000 in the amount of $62,000 and $130,000, respectively, with additional payments due in fiscal 2002 for eligible plan participants as of March 31, 1999.

		Page Number
Independent Auditors' Report		42
Consolidated Statements of Operations for the three years ended May 31, 2002		43
Consolidated Balance Sheets at May 31, 2002 and 2001		44
Consolidated Statements of Stockholders' Equity for the three years ended May 31, 2002		45
Consolidated Statements of Cash Flow for the three years ended May 31, 2002		46
Notes to Consolidated Financial Statements		47-67

~~The Company~~ ~~has a plan that provides certain health care benefits for all of its retired employees who meet certain age and service requirements while working for the Company~~2. ~~Generally,~~ Consolidated ~~Company-provided~~Financial ~~health~~Statement ~~care coverage is coordinated with Medicare upon the retiree reaching the age of 65.~~ Schedule

~~In fiscal~~Schedule ~~year~~for ~~2001,~~ the ~~plan~~three ~~was amended to increase the eligibility age over the next few~~ years ~~from~~ended ~~age~~May 6031, ~~and 10 years of service beginning in fiscal year~~ 2002: toSchedule ~~age~~II 65 Valuation and ~~10 years~~Qualifying ofAccounts ~~service beginning in fiscal year 2005.~~ 68

~~Net~~All ~~postretirement~~other ~~benefit~~schedules ~~cost~~are ~~was~~omitted ~~$204,000,~~because ~~$301,000~~they ~~and~~are ~~$270,000~~not ~~for~~applicable ~~fiscal~~or ~~years~~the ~~2001,~~required ~~2000~~information ~~and~~is ~~1999,~~shown ~~respectively.~~in ~~The~~the ~~Company's~~consolidated ~~postretirement~~financial ~~health~~statements ~~care~~or ~~plans~~notes ~~are not funded~~thereto.

3. Exhibits

See Index to Exhibits on pages 36 to 39. The Exhibits listed in the accompanying Index are referenced as part of this report.

B.: Reports on Form 8-K:

None.

EXHIBITS:
2.1		Merger Agreement Among T Acquisition L.P., T Acquisition Co. and the Company dated July 29, 2002 (Exhibit 2 filed with Form 8-K dated July 29, 2002)⁽²⁾
3.1		Certificate of Incorporation (Exhibit 3.1 of 1993 Form 10-K)⁽²⁾
3.2		Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock (Exhibit 3.2 filed with Form 10-Q for the quarter ended November 30, 1996)⁽²⁾
3.4		Third Amended and Restated Bylaws of the Company dated September 10, 2001 (Exhibit 3.5 of Form 8-K/A dated September 19, 2001)⁽²⁾

Accumulated postretirement benefit obligation:

4.1		Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (including as Exhibit A the form of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement)(Exhibit 1 of Form 8-K dated October 17, 1996)⁽²⁾
4.2		Amendment No. 1 to Rights Agreement between the Company and Mellon Investor Services L.L.C. (f/k/a ChaseMellon Shareholder Services L.L.C.) dated September 10, 2001 (Exhibit 99.4 of Form 8-K/A dated September 13, 2001)⁽²⁾
4.3		Amendment No. 2 to Rights Agreement between the Company and Mellon Investor Services L.L.C (f/k/a ChaseMellon Shareholder Services L.L.C.) dated July 29, 2002 (Exhibit 4 filed with Form 8-K dated July 29, 2002)⁽²⁾
10.1		1991 Stock Option Plan (Exhibit 10.1 of the 1991 Form 10-K)⁽¹⁾⁽²⁾
10.2		Note Agreement of Tab Products Co. dated as of March 20, 1992 in the aggregate principal amount of $15,000,000 (Exhibit 10.5 of the 1992 Form 10-K)⁽²⁾
10.3		Amendment dated July 27, 1993 to Note Agreement of Tab Products Co. dated as of March 20, 1992 (Exhibit 10.16 filed with the 1993 Form 10-K)⁽²⁾
10.4		Note Agreement of Tab Products Co. dated October 7, 1993 (Exhibit 10.20 filed with Form 10-Q for the quarter ended August 31, 1993)⁽²⁾
10.5		Letter dated October 7, 1993 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.21 filed with Form 10-Q for the quarter ended August 31, 1993)⁽²⁾
10.6		Letter dated October 27, 1993 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.27 filed with the 1994 Form 10-K)⁽²⁾
10.7		Letter dated June 15, 1995 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.32 filed with the 1995 Form 10-K)⁽²⁾
10.8		Letter dated July 21, 1995 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.33 filed with the 1995 Form 10-K)⁽²⁾
10.9		Letter dated December 13, 1995 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.35 filed with Form 10-Q for the quarter ended November 30, 1995)⁽²⁾
10.10		Letter dated August 20, 1996 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.37 filed with the 1996 Form 10-K)⁽²⁾
10.11		Form of Indemnity Agreement between the Company and each of its Executive Officers and Directors (Exhibit 10.38 filed with Form 10-Q for the quarter ended November 30, 1996)⁽¹⁾⁽²⁾
10.12		Outside Directors' Option Plan and Agreement (Exhibit 10.41 filed with Form 10-Q for the quarter ended November 30, 1996)⁽¹⁾⁽²⁾
10.13		Employment Agreement between the Company and Philip C. Kantz (Exhibit 10.42 filed with Form 10-Q for the quarter ended February 28, 1997)⁽¹⁾⁽²⁾
10.14		Non-qualified Stock Option Agreement between the Company and Philip C. Kantz (Exhibit 10.43 filed with Form 10-Q for the quarter ended February 28, 1997)⁽¹⁾⁽²⁾

	May 31
	2001			2000
Changes in benefit obligation:
Benefit obligation at beginning of year	$	2,117,000		$	1,935,000
Service cost		65,000			106,000
Interest cost		131,000			151,000
Actuarial loss		31,000			364,000
Amendment change		(347,000	)		—
Assumption change		44,000			(158,000	)
Benefits paid		(221,000	)		(281,000	)
Benefit obligations at end of year		1,820,000			2,117,000
Unrecognized prior service cost		367,000			47,000
Unrecognized net actuarial loss		(916,000	)		(876,000	)
Accrued postretirement benefit cost	$	1,271,000		$	1,288,000

Net postretirement benefit costs consisted of the following components:

	2001		2000		1999
Service cost	$	65,000	$	106,000	$	116,000
Interest cost on accumulated postretirement benefit obligation		131,000		151,000		126,000
Net amortization and deferrals		8,000		44,000		28,000
Net postretirement benefit costs	$	204,000	$	301,000	$	270,000

The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of June 1, 2000 was 7% decreasing linearly each successive year until it reaches 5% in 2003, after which it will remain constant. A one-percentage-point increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation, service cost and interest cost components of the net periodic postretirement benefit cost by approximately 11%, 22% and 10%, respectively. The impact of a 1% decrease in the trend rates would decrease these components 10%, 18% and 8%, respectively. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for fiscal 2001 and 7.75% for fiscal 2000.

8. Stock Option Plans, Stock Purchase Right Plan, Leveraged Stock Purchase Plan and Stock Repurchase Plan

10.15		Non-qualified Stock Option Agreement between the Company and Philip C. Kantz (Exhibit 10.44 filed with Form 10-Q for the quarter ended February 28, 1997)⁽¹⁾⁽²⁾
10.16		Non-qualified Stock Option Agreement between the Company and Philip C. Kantz (Exhibit 10.45 filed with Form 10-Q for the quarter ended February 28, 1997)⁽¹⁾⁽²⁾
10.17		Bank of America Business Loan Agreement dated November 1, 1998 (Exhibit 10.1 filed with form 10-Q for the quarter ended November 30, 1998)⁽²⁾
10.18		Lease Agreement dated January 29, 1999 (Exhibit 10.1 filed with Form 10-Q for the quarter ended February 28, 1999)⁽²⁾
10.19		Letter dated May 28, 1999 amending the Prudential Note Agreement dated March 20, 1992 (Exhibit 10.21 filed with 1999 Form 10-K)⁽²⁾
10.20		Bank of America Amendment No.1 dated May 31, 1999 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.22 filed with 1999 Form 10-K)⁽²⁾
10.21		Bank of America Amendment No.2 dated May 31, 1999 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.23 filed with 1999 Form 10-K)⁽²⁾
10.22		Form of Change of Control Agreement between the Company and certain Executive Officers hired before January 1, 2001 (Exhibit 10.24 filed with 1999 Form 10-K)⁽²⁾
10.25		Sale of Field Service Group as reported on Form 8-K/A (filed July 30, 1999)⁽²⁾
10.26		Form of Tab Products Co. Stock Purchase Agreement relating to the Leveraged Stock Purchase Program between the Company and certain executive officers and key employees (Exhibit 10.1 filed with Form 10-Q for the quarter ended November 30, 1999)⁽¹⁾⁽²⁾
10.27		Bank of America Amendment No. 3 dated September 24, 1999 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.2 filed with Form 10-Q for the quarter ended November 30, 1999)⁽²⁾
10.28		Bank of America Amendment No. 4 dated January 13, 2000 to Business Loan Agreement dated November 30, 1998 (Exhibit 10.1 filed with Form 10-Q for the quarter ended February 29, 2000)⁽²⁾
10.29		Bank of America Amendment No. 5 dated April 10, 2000 to Business Loan Agreement dated November 1, 1998 (Exhibit 10.29 filed with 2000 Form 10-K)⁽²⁾
10.30		Confidential Retirement Agreement and General Release of Claims between Philip C. Kantz and Tab Products Co. (Exhibit 10.30 filed with 2000 Form 10-K)⁽¹⁾⁽²⁾
10.31		Business Loan Agreement between Comerica Bank-California and Tab Products Co. dated November 21, 2000 (Exhibit 10.1 filed with Form 10-Q for the quarter ended November 30, 2000)⁽²⁾
10.32		Employment Agreement between the Company and Gary W. Ampulski (Exhibit 10.1 filed with Form 10-Q for the quarter ended February 28, 2001)⁽¹⁾⁽²⁾
10.33		Change of Control Agreement between the Company and Gary W. Ampulski (Exhibit 10.2 filed with Form 10-Q for the quarter ended February 28, 2001)⁽¹⁾⁽²⁾
10.34		Form of Change of Control Agreement for Executive Officers hired after January 1, 2001 (Exhibit 10.34 filed with 2001 Form 10-K)⁽¹⁾⁽²⁾

Under the 1991 Employee Stock Option Plan (the "1991 Option Plan"), the Company may grant options to purchase shares of common stock to employees at prices not less than the fair market value of a share of stock at the date of grant for incentive stock options and not less than 85% of fair market value of a share of stock for non-statutory stock options. The options generally expire 10 years from the date of grant. The options generally become exercisable 25% per year over a 4-year period for those options granted prior to fiscal 1999 and, for those options granted thereafter, 371/2% of the grant becomes exercisable 18 months after the date of grant with the remainder becoming exercisable ratably by quarter so as to be fully exercisable 5 years from the date of grant. The 1991 Option Plan expired on March 21, 2001, and no further options may be granted from the plan after that date.

Under the 1996 Outside Directors Option Plan, (the "Directors Plan"), an option to purchase 10,000 shares of common stock of the Company is automatically granted to each outside director at the date of appointment as a director. This option is granted at the fair market value of a share of stock on the date of grant, expires 10 years from the date of grant and becomes exercisable 25% per year over a 4-year period. Also under the Directors Plan, outside directors of the Company are automatically granted additional options annually to purchase 2,000 shares of common stock of the Company at the fair market value of a share of stock on the date of grant for each year that such person remains a director of the Company. The grant date is the date of the Annual Stockholders Meeting. Annual options granted under the Directors Plan are exercisable on the date preceding the next Annual Stockholders meeting after the date of grant. The options expire 10 years from the date of grant. All options issued under the Directors Plan are non-qualified options.

On December 14, 2000, an option to purchase 250,000 shares of common stock of the Company was granted to the Company's President and Chief Executive Officer. The option was granted separately from the Company's 1991 Option Plan. The option was granted at the fair market value of a share of stock on the date of grant ($2.125). The option expires 10 years from the date of grant and becomes exercisable in four annual installments commencing one year after the grant date.

On April 18, 2001, the Board of Directors of the Company approved the 2001 Nonstatutory Stock Option Plan (the "2001 Nonstatutory Option Plan"). Under the 2001 Nonstatutory Option Plan, options may be granted at a price that is not less than 85% of the fair market value of a share of stock on the date of grant. The options generally become exercisable at a rate of 371/2% 18 months after the date of grant with the remainder becoming exercisable ratably by quarter so as to be fully exercisable 5 years from the date of grant. The options expire 10 years from the date of grant.

Activity under the option plans is as follows:

10.35		Letter Agreement amending the Employment Agreement between the Company and Gary W. Ampulski, dated May 30, 2001 (Exhibit 10.35 filed with 2001 Form 10-K)⁽¹⁾⁽²⁾
10.36		Promissory Note between the Company and Gary W. Ampulski, dated March 1, 2001 (Exhibit 10.36 filed with 2001 Form 10-K)⁽²⁾
10.37		Non-Qualified Stock Option Agreement between the Company and Gary W. Ampulski dated December 14, 2000 (Exhibit 10.37 filed with 2001 Form 10-K)⁽¹⁾⁽²⁾
10.38		2001 Nonstatutory Stock Option Plan and Form of Agreement (Exhibit 10.38 filed with 2001 Form 10-K)⁽¹⁾⁽²⁾
10.39		Modification to Business Loan Agreement dated August 21, 2001 from Comerica Bank (Exhibit 10.1 filed with Form 10-Q for the quarter ended August 31, 2001)⁽²⁾
10.40		Agreement, made as of September 10, 2001, by and among the Company, 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 (Exhibit 99.1 filed with Form 8-K dated September 11, 2001)⁽²⁾
10.41		Agreement, made as of September 10, 2001, by and among the Company, a Delaware corporation, Henry Partners, L.P., a Delaware limited partnership, Matthew Partners, L.P., a Delaware limited partnership, and David W. Wright, a natural person and citizen of the United States of America (Exhibit 99.2 filed with Form 8-K dated September 11, 2001)⁽²⁾
10.42		Modification to Business Loan Agreement between Comerica Bank and the Company dated November 16, 2001 (Exhibit 10.1 filed with Form 10-Q for the quarter ended November 30, 2001)⁽²⁾
10.43		Loan Revision / Extension Agreement between the Company and Comerica Bank dated November 16, 2001 (Exhibit 10.2 filed with Form 10-Q for the quarter ended November 30, 2001)⁽²⁾
10.44		2001 Stock Option Plan⁽¹⁾
21.1		Subsidiaries
23.1		Independent Auditors' Consent
99.1		Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

⁽¹⁾: Compensatory Plan or Arrangement
⁽²⁾: Incorporated by reference from the noted previously filed document.

	Number of Shares		Weighted Average Exercise Price
Outstanding, June 1, 1998 (149,125 exercisable at weighted average price of $7.58)	511,750		$	8.26
Granted (weighted average fair value of $2.92)	186,500			10.63
Exercised	(4,500	)		6.00
Canceled	(38,125	)		10.02
Outstanding, May 31, 1999 (282,875 exercisable at weighted average price of $7.91)	655,625			8.84
Granted (weighted average fair value of $1.93)	43,000			5.62
Exercised	(5,000	)		6.00
Canceled	(19,875	)		7.75
Outstanding, May 31, 2000 (396,245 exercisable at weighted average price of $8.50)	673,750			8.69
Granted (weighted average fair value of $1.46)	692,000			2.87
Exercised	—			—
Canceled	(509,625	)		8.28
Outstanding, May 31, 2001 (227,927 exercisable at weighted average price of $7.20)	856,125		$	4.23

Additional information regarding options outstanding as of May 31, 2001 is as follows:

			Options Outstanding
						Options Exercisable
			Weighted Avg. Remaining Contractual Life (yrs.)
Range of Exercise Prices		Number Outstanding		Weighted Avg. Exercise Price		Number Exercisable	Weighted Avg. Exercise Price
$	2.13-$ 2.13	303,000	9.5	$	2.13	13,000	$	2.13
$	2.63-$ 3.50	205,000	9.5	$	3.29	—	$	—
$	3.60-$ 6.38	175,875	7.9	$	4.63	66,874	$	5.84
$	6.50-$11.88	132,250	5.5	$	7.49	124,125	$	7.45
$	12.50-$12.50	40,000	7.1	$	12.50	23,928	$	12.50
$	2.13-$12.50	856,125	8.5	$	4.23	227,927	$	7.20

At May 31, 2001, 98,000 and 62,000 shares were available for future grants under the Nonstatutory Stock Option Plan and Directors Plan, respectively.

~~Additional Stock Plan Information~~SIGNATURES

As Pursuant to ~~discussed in~~ the ~~Statement~~requirement of ~~Accounting~~Section 13 ~~Policies,~~or ~~the~~15(d) ~~Company~~of ~~continues~~the toSecurities ~~account~~Exchange ~~for~~Act ~~its~~of ~~stock-based~~1934, ~~awards~~the ~~using~~Company ~~the~~has ~~intrinsic~~duly ~~value~~caused ~~method~~this ~~in accordance~~report ~~with~~to ~~Accounting~~be ~~Principles~~signed ~~Board~~on ~~No. 25,~~its ~~Accounting~~behalf ~~for~~by ~~Stock~~the ~~Issued~~undersigned, thereunto toduly ~~Employees~~authorized, ~~and~~in ~~its~~the ~~related~~City ~~interpretations.~~of ~~Accordingly~~Vernon Hills, noin ~~compensation~~the ~~expense~~State ~~has~~of ~~been~~Illinois, ~~recognized~~on inthis ~~the financial~~27th ~~statements~~day ~~for~~of ~~employee~~August, ~~stock arrangements~~2002.

~~Statement of~~TAB ~~Financial~~PRODUCTS ~~Accounting Standards No~~CO. ~~123,~~ ~~Accounting~~/s/ ~~for~~GARY ~~Stock-Based Compensation, ("SFAS No~~W. ~~123")~~ ~~requires~~AMPULSKI ~~the~~Gary ~~disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of fiscal 1996~~W. ~~Under~~Ampulski ~~SFAS No. 123,~~President ~~the~~& ~~fair~~Chief ~~value~~Executive of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. Officer

~~These~~ Pursuant ~~models also require subjective assumptions, including future stock price volatility and expected time~~ to ~~exercise,~~the ~~which~~requirements ~~greatly~~of ~~affect~~ the ~~calculated~~Securities ~~values.~~Exchange ~~The~~Act ~~Company's calculations~~of ~~were~~1934, ~~made~~this ~~using~~report ~~the~~has ~~Black-Scholes~~been ~~option~~signed ~~pricing~~below ~~model~~by ~~with~~ the following ~~weighted~~persons average assumptions: expected life, 12 months following vesting; stock volatility, 47.43% in fiscal 2001, 40.9% in fiscal 2000 and 36.4% in fiscal 1999; risk free interest rates, 5.18% in fiscal 2001, 7.44% in fiscal 2000 and 5.29% in fiscal 1999 and a dividend rate of 0% in fiscal 2001 and 2.5% in fiscal years 2000 and 1999. The Company's calculations are based on abehalf ~~multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values~~ of the ~~awards had~~Company ~~been amortized to expense over the vesting period of the awards, pro forma net (loss) income would have been $(11,970,000) ($2.31 basic~~ and ~~diluted loss per share)~~ in fiscal 2001, $8,347,000 ($1.62 basic and diluted income per share) in fiscal 2000, $(55,000) ($.01 basic and diluted loss per share) in fiscal 1999. The impact of outstanding non-vested stock options granted prior to fiscal 1996 has been excluded from the ~~pro~~capacities ~~forma calculation; accordingly, the fiscal 2001, 2000~~ and ~~1999~~on ~~pro forma adjustments are not indicative of future period pro forma adjustments, when~~ the dates ~~calculation will apply to all applicable stock options~~indicated.

In October 1996, the Company declared a dividend of one Preferred Stock Purchase Right ("Right") for each outstanding share of common stock. The Right entitles a stockholder to purchase one one-hundredth of a share of preferred stock at $35 per Right exercisable after a person acquires 15% or more of TAB's common stock or announces a tender offer which could result in such person owning 15% or more of the common stock. Each one one-hundredth of a share of preferred stock has terms designed to make it substantially the economic equivalent of one share of common stock. Under certain circumstances, if a person acquires 15% or more of the common stock, the Rights permit the holders to purchase TAB common stock having a market value of twice the exercise price of the Rights, in lieu of the preferred stock. In addition, in the event of certain business combinations, the Rights permit purchase of the common stock of an acquiring person at a 50% discount. Rights held by an acquiring person will become null and void in both cases. The Rights are subject to redemption by the Company's Board of Directors for $.001 for each Right. The Rights expire on October 23, 2006.

Name and Title				Date

/s/ GARY W. AMPULSKI Gary W. Ampulski, President and Chief Executive Officer				August 27, 2002
/s/ DONALD J. HOTZ Donald J. Hotz, Vice President, Chief Financial Officer and Treasurer				August 27, 2002
/s/ ROBERT J. CRECCA Robert J. Crecca, Corporate Controller, Chief Accounting Officer and Asst. Secretary				August 27, 2002
/s/ HANS A. WOLF Hans A. Wolf, Chairman of the Board				August 27, 2002
/s/ KATHRYN S. HANSON Kathryn S. Hanson, Director				August 27, 2002
/s/ JEFFREY A. HEIMBUCK Jeffrey A. Heimbuck, Director				August 27, 2002
/s/ WARREN G. LICHTENSTEIN Warren G. Lichtenstein, Director				August 27, 2002
/s/ JERRY K. MYERS Jerry K. Myers, Director				August 27, 2002
/s/ DAVID W. WRIGHT David W. Wright, Director				August 27, 2002

In October 1999, the Company implemented a Stock Purchase and Stock Bonus Plan (the "Plan") with certain executive officers and key employees of the Company. The Plan allows an employee to borrow funds from the Company to acquire a specified number of common shares. An equivalent number of shares of common stock were also granted to each individual. The stock grant vests after three years. All certificates are held by the Company as collateral against the notes receivable. The note and accrued interest will be forgiven after three years, if the employee continues employment with

~~the~~ ~~Company~~ TAB ~~during~~PRODUCTS ~~that period~~CO. CONSOLIDATED ~~The~~FINANCIAL ~~Company~~STATEMENTS AND ~~used~~CONSOLIDATED ~~207,500~~FINANCIAL ~~shares~~STATEMENT ofSCHEDULE FORM ~~Treasury Stock to implement the Plan. The stock subscriptions~~10-~~notes~~K ~~receivable~~ITEM ~~related~~14 FISCAL toYEARS ~~the~~ENDED ~~stock~~MAY ~~grants~~31, ~~are~~2002, ~~offset~~2001 ~~in Stockholders'~~AND ~~Equity.~~ 2000

In July 1998, the Company authorized a stock repurchase program for 300,000 shares of Common Stock. The authorization was effective until July 1999. During fiscal 1999, the Company purchased 146,200 shares of Common Stock under the Company's repurchase program at a cost of $955,000. The remaining unused portion of this authorization of 153,800 shares expired in July 1999. Subsequently the Company's Board of Directors approved a new authorization to repurchase 300,000 shares of Common Stock that was effective until July 2000. During fiscal 2000 the Company repurchased 33,100 shares for $218,000. The Company did not renew the stock repurchase program, which expired in July 2000.

On December 14, 2000, the Company's Board of Directors approved the issuance of a warrant for 13,000 shares of the Company's Common Stock to a recruiting firm in exchange for its services. The exercise price is $2.125, the closing price for the Company's Common Stock on the date of issuance. The warrant is immediately exercisable and expires on January 1, 2004. The warrant had not been exercised as of May 31, 2001. The estimated fair value of the warrant of $10,000 was recorded as an expense in fiscal year 2001.

9. Commitments and Contingencies

The Company and its subsidiaries are obligated under leases of certain office and warehouse facilities expiring at various dates through 2006. The future minimum rental payments under these lease agreements at May 31, 2001 are as follows:

2002	$	3,412,000
2003		2,829,000
2004		2,242,000
2005		1,743,000
2006		555,000
	$	10,781,000

Total rentals charged to expense amounted to $3,413,000 in 2001, $3,083,000 in 2000 and $2,869,000 in 1999.

10. Major Customer

No single customer accounted for greater than 10% of consolidated revenues in fiscal years 2001, 2000 and 1999.

11. Segment Reporting

~~general~~ ~~manager that reports to the Vice President, International, who reports to the Chief Executive Officer. Within the United States, the individuals responsible for operations, marketing and sales~~ ~~report~~ INDEPENDENT ~~directly~~AUDITORS' ~~to the Chief Executive Officer.~~ REPORT

~~Information~~To ~~about~~the ~~segments~~Board ~~for~~of ~~the~~Directors ~~years~~and ~~ended~~Stockholders of ~~May 31~~Tab Products Co.:

		2001		2000		1999
Revenues:
	United States	$	88,505,000	$	101,735,000	$	126,269,000
	Canada		21,680,000		20,054,000		18,664,000
	Netherlands		4,408,000		5,019,000		7,067,000
	Australia		3,929,000		3,760,000		3,620,000
	Consolidated Total	$	118,522,000	$	130,568,000	$	155,620,000

We have audited the accompanying consolidated balance sheets of Tab Products Co. and its subsidiaries (the "Company") as of May 31, 2002 and 2001 and the related consolidated statements of operations, of stockholders' equity, and of cash flows for each of the three years in the period ended May 31, 2002. Our audits also included the financial statement schedule of the Company for each of the three years in the period ended May 31, 2002 listed in Item 14A. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

		2001			2000			1999
(Loss) income before income taxes:
	United States	$	(19,821,000	)	$	13,968,000		$	38,000
	Canada		691,000			(49,000	)		(520,000	)
	Netherlands		804,000			1,134,000			1,457,000
	Australia		(40,000	)		(207,000	)		(383,000	)
	Consolidated Total	$	(18,366,000	)	$	14,846,000		$	592,000

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

		2001		2000		1999
Depreciation and amortization:
	United States	$	8,709,000	$	3,390,000	$	4,128,000
	Canada		367,000		492,000		572,000
	Netherlands		62,000		59,000		55,000
	Australia		32,000		65,000		47,000
	Consolidated Total	$	9,170,000	$	4,006,000	$	4,802,000

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tab Products Co. and its subsidiaries as of May 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information shown therein.

		2001		2000
Long-lived assets:
	United States	$	11,900,000	$	13,585,000
	Canada		506,000		733,000
	Netherlands		123,000		151,000
	Australia		223,000		179,000
	Consolidated Total	$	12,752,000	$	14,648,000

DELOITTE & TOUCHE LLP

~~Geographic~~Chicago, ~~revenues~~Illinois July 1, ~~are based on the country from which customers are invoiced.~~ 2002 (~~Loss) income before income taxes is net sales less operating expenses~~July 29, ~~interest~~2002 oras ~~other expenses, but prior~~ to ~~income~~Notes 1 ~~taxes.~~and 19)

12 TAB PRODUCTS CO. CONSOLIDATED ~~Per~~STATEMENTS ~~Share~~OF ~~Information~~ OPERATIONS

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period while diluted earnings per share also includes the dilutive impact of stock options. Basic and diluted earnings per share for the fiscal years ended May 31, 2001, 2000 and 1999, respectively, are calculated as follows (in thousands, except per share data):

		Year Ended May 31
		2002			2001			2000
Revenues		$	103,947,000		$	118,522,000		$	130,568,000
Operating costs and expenses:
	Cost of revenues		64,630,000			74,442,000			80,590,000
	Selling, general and administrative		44,731,000			63,351,000			61,686,000

Total operating costs and expenses			109,361,000			137,793,000			142,276,000

Operating loss			(5,414,000	)		(19,271,000	)		(11,708,000	)
Gain on sale of business unit			—			—			13,794,000
Gain on sale of property			—			1,119,000			12,919,000
Interest and other, net			133,000			(214,000	)		(159,000	)

(Loss) earnings before income taxes			(5,281,000	)		(18,366,000	)		14,846,000
(Benefit) provision for income taxes			(1,891,000	)		(6,612,000	)		6,272,000

Net (loss) earnings before cumulative effect of a change in accounting principle			(3,390,000	)		(11,754,000	)		8,574,000
Cumulative effect of a change in accounting principle			—			(330,000	)		—

Net (loss) earnings		$	(3,390,000	)	$	(12,084,000	)	$	8,574,000

(Loss) earnings per share
Basic net (loss) earnings per share before cumulative effect of a change in accounting principle		$	(0.66	)	$	(2.28	)	$	1.67
Cumulative effect of a change in accounting principle			—			(0.06	)		—

Basic net (loss) earnings per share		$	(0.66	)	$	(2.34	)	$	1.67

Shares used in computing basic net (loss) earnings per share			5,148,000			5,173,000			5,140,000
Diluted net (loss) earnings per share before cumulative effect of a change in accounting principle		$	(0.66	)	$	(2.28	)	$	1.67
Cumulative effect of a change in accounting principle			—			(0.06	)		—

Diluted net (loss) earnings per share		$	(0.66	)	$	(2.34	)	$	1.67

Shares used in computing diluted net (loss) earnings per share			5,148,000			5,173,000			5,142,000

		2001			2000		1999
Weighted average shares outstanding			5,173			5,140		5,090
Net (loss) earnings		$	(12,084	)	$	8,574	$	162
	Basic (loss) earnings per share	$	(2.34	)	$	1.67	$	0.03
Weighted average shares outstanding			5,173			5,140		5,090
Dilutive effect of options			—			2		32
	Total		5,173			5,142		5,122
Net (loss) earnings		$	(12,084	)	$	8,574	$	162
	Diluted (loss) earnings per share	$	(2.34	)	$	1.67	$	0.03

See accompanying Notes to Consolidated Financial Statements.

13. Selected Quarterly Data (Unaudited)

(In thousands, except per share data)

								(Loss) Earnings Per Share
Fiscal Quarter Ended			Gross Profit(1)		Net (Loss) Earnings
	Revenues							Basic			Diluted
May 31, 2001
First Quarter	$	30,230	$	10,764	$	(3,121	)	$	(.60	)	$	(.60	)
Second Quarter		29,962		11,389		(1,728	)		(.34	)		(.34	)
Third Quarter		29,143		11,226		(2,325	)		(.45	)		(.45	)
Fourth Quarter		29,187		10,701		(4,910	)		(.95	)		(.95	)
	$	118,522	$	44,080	$	(12,084	)		(2.34	)		(2.34	)
May 31, 2000
First Quarter	$	31,994	$	12,750	$	7,280		$	1.45		$	1.44
Second Quarter		31,201		12,640		(1,241	)		(.24	)		(.24	)
Third Quarter		32,727		12,558		5,510			1.06			1.06
Fourth Quarter		34,646		12,030		(2,975	)		(.57	)		(.57	)
	$	130,568	$	49,978	$	8,574			1.67			1.67

The net loss for the first quarter of fiscal year 2001 includes a charge of $330,000 ($0.06 loss per share) for the cumulative effect of accounting change.

14. Asset Sales

~~Howell~~ ~~on June 1, 1999. The price of the Purchased Assets, as defined in the Agreement, consists of an initial cash payment of $11,200,000, the assumption of certain liabilities and obligations~~ of ~~the Company valued at an estimated $4,300,000 and up to an additional $3,500,000 payable to the Company for changes in certain accounts attributable to the Field Service Group. In connection with~~ ~~the~~TAB ~~sale~~PRODUCTS ~~the Company recorded a pre-tax gain on sale of $13~~CO.~~8 million~~ CONSOLIDATED inBALANCE ~~the first quarter of fiscal year 2000.~~ SHEETS

		May 31
		2002			2001
ASSETS
Current assets:
Cash and cash equivalents		$	8,836,000		$	5,872,000
Short-term investments			2,313,000			2,965,000
Accounts receivable, less allowances for doubtful accounts of $867,000 and $889,000			15,657,000			23,507,000
Inventories			4,667,000			5,104,000
Income tax receivable			2,809,000			4,764,000
Deferred income taxes			1,927,000			3,002,000
Prepaid expenses			1,144,000			1,548,000

Total current assets			37,353,000			46,762,000
Property, plant and equipment, net			5,975,000			7,516,000
Goodwill, net			2,510,000			2,643,000
Deferred pension asset			—			3,134,000
Deferred income taxes and other assets			4,311,000			2,102,000

Total assets		$	50,149,000		$	62,157,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	7,217,000		$	10,816,000
Compensation payable			1,738,000			2,290,000
Other accrued liabilities			5,088,000			7,277,000

Total current liabilities			14,043,000			20,383,000

Other noncurrent liabilities			2,003,000			1,271,000

Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value, authorized—500,000 shares, issued—none			—			—
Common stock, $.01 par value, authorized—25,000,000 shares, Issued—2002—7,802,384 shares, 2001—7,742,137 shares			78,000			77,000
Additional paid-in capital			15,662,000			15,236,000
Stock subscriptions—notes receivable			(198,000	)		(397,000	)
Retained earnings			54,584,000			57,974,000
Treasury stock, 2002—2,678,469 and 2001—2,535,969 shares			(32,452,000	)		(31,597,000	)
Accumulated other comprehensive loss:
	Minimum pension liability		(2,920,000	)		—
	Translation adjustment		(651,000	)		(790,000	)

Total stockholders' equity			34,103,000			40,503,000

Total liabilities and stockholders' equity		$	50,149,000		$	62,157,000

See accompanying Notes to Consolidated Financial Statements.

TAB PRODUCTS CO.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Common Stock
	Common Stock							Stock Subscriptions- Notes Receivable									Accumulated Other Comprehensive Income (Loss)
	Number of Shares Outstanding		Amount		Additional Paid-in Capital			Stock Subscriptions- Notes Receivable			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Comprehensive Income (Loss)
Balances, June 1, 1999	5,027,689		$	76,000	$	15,255,000					$	63,031,000		$	(32,320,000	)	$	(2,914,000	)	$	166,000

Net earnings												8,574,000								$	8,574,000
Dividends, $.20 per share												(1,032,000	)
Minimum pension liability adjustment (net of $1,738,000 tax)																		2,381,000			2,381,000
Translation adjustment (net of $134,000 tax)																		(184,000	)		(184,000	)
Stock options exercised and tax benefit on disqualified common stock dispositions	5,000					30,000
Sale of treasury stock	207,500					1,000		$	(1,374,000	)					1,374,000
Common stock repurchases	(33,100	)													(218,000	)

Balances, May 31, 2000	5,207,089			76,000		15,286,000			(1,374,000	)		70,573,000			(31,164,000	)		(717,000	)	$	10,771,000

Net loss												(12,084,000	)							$	(12,084,000	)
Dividends, $.10 per share												(515,000	)
Adjust treasury stock to average cost						(1,211,000	)								1,211,000
Translation adjustment (net of $41,000 tax)																		(73,000	)		(73,000	)
Common stock issued to Tax Deferred Savings Plan	146,579			1,000		290,000									194,000
Cancellation of stock subscription	(147,500	)				861,000			977,000						(1,838,000	)
Warrant issued						10,000

Balances, May 31, 2001	5,206,168			77,000		15,236,000			(397,000	)		57,974,000			(31,597,000	)		(790,000	)	$	(12,157,000	)

Net loss												(3,390,000	)							$	(3,390,000	)
Translation adjustment (net of $77,000 tax)																		139,000			139,000
Minimum pension liability adjustment (net of $1,784,000 tax)																		(2,920,000	)		(2,920,000	)
Common stock issued to Tax Deferred Savings Plan	60,247			1,000		251,000
Common stock repurchases	(112,500	)													(481,000	)
Cancellation of stock subscription	(30,000	)				175,000			199,000						(374,000	)

Balances, May 31, 2002	5,123,915		$	78,000	$	15,662,000		$	(198,000	)	$	54,584,000		$	(32,452,000	)	$	(3,571,000	)	$	(6,171,000	)

See accompanying Notes to Consolidated Financial Statements.

TAB PRODUCTS CO.

CONSOLIDATED STATEMENTS OF CASH FLOW

	Year Ended May 31
	2002			2001			2000
OPERATING ACTIVITIES
Net (loss) earnings	$	(3,390,000	)	$	(12,084,000	)	$	8,574,000
Cumulative effect of a change in accounting principle		—			330,000			—
Adjustments to reconcile net (loss) earnings to net cash flows from operating activities:
Depreciation and amortization		2,724,000			9,170,000			4,006,000
Deferred income taxes		392,000			(2,518,000	)		(904,000	)
Gain on sale of business unit		—			—			(7,967,000	)
Gain on sale of property		—			(1,119,000	)		(7,462,000	)
Issuance of common stock to Tax Deferred Savings Plan		252,000			495,000			—
Other		28,000			(17,000	)		159,000
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable, net		7,850,000			4,935,000			(3,411,000	)
Inventories		437,000			2,316,000			(319,000	)
Income tax receivable		1,955,000			(4,764,000	)		—
Prepaid expenses		404,000			13,000			480,000
Deferred pension asset		214,000			(1,346,000	)		(1,788,000	)
Deferred taxes and other assets		(1,526,000	)		228,000			3,443,000
Accounts payable		(3,599,000	)		792,000			2,170,000
Compensation payable		(552,000	)		(508,000	)		731,000
Other accrued liabilities		(1,457,000	)		1,161,000			(10,976,000	)

Net cash flows from operating activities		3,732,000			(2,916,000	)		(13,264,000	)

INVESTING ACTIVITIES
Purchases of property, plant and equipment		(1,110,000	)		(1,536,000	)		(2,865,000	)
Purchase of operating assets of Docucon, Inc.		—			—			(5,330,000	)
Sale of property		—			2,900,000			17,803,000
Sale of business unit		—			—			13,405,000
Sale of other property, plant and equipment		32,000			83,000			78,000
Purchases of short-term investments		(2,514,000	)		(5,997,000	)		(7,006,000	)
Sales of short-term investments		3,166,000			8,202,000			4,777,000

Net cash flows from investing activities		(426,000	)		3,652,000			20,862,000

FINANCING ACTIVITIES
Repayment of debt		—			—			(7,390,000	)
Issuance of common stock		—			—			31,000
Purchase of treasury stock		(481,000	)		—			(218,000	)
Dividends paid		—			(515,000	)		(1,032,000	)

Net cash flows from financing activities		(481,000	)		(515,000	)		(8,609,000	)

Effect of exchange rate changes on cash		139,000			(73,000	)		(237,000	)

Increase (decrease) in cash and cash equivalents		2,964,000			148,000			(1,248,000	)
Cash and cash equivalents at beginning of year		5,872,000			5,724,000			6,972,000

Cash and cash equivalents at end of year	$	8,836,000		$	5,872,000		$	5,724,000

See accompanying Notes to Consolidated Financial Statements.

TAB PRODUCTS CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

Description of business—The Company operates in a single industry that manufactures and markets document management solutions, including services and products. The Company sells its offerings to, among other entities, government, insurance, finance and healthcare organizations. The Company was incorporated in February 1954, and subsequently reorganized as a corporation under Delaware law in September 1986.

The Company's business strategy is to provide significant expertise in the records management market, while offering services and products that provide complete solutions. The Company markets to its customers through multiple channels of distribution to achieve broad market coverage for all sized accounts, in the U.S., Canada, Europe and Australia. The Company has manufacturing facilities in the U.S. and Canada. Approximately 76% of the Company's revenue comes from the U.S. operation and 24% comes from the international businesses.

The Company provides complete solutions that enable its customers to better organize, control and access their critical documents. By leveraging its 50 years of expertise in managing paper records and files, the Company can also effectively support those clients who wish to integrate their paper-based systems into emerging technologies.

The Company's principal products and services include:

1): Filing Systems and Supplies
2): Document Management Software
3): Multimedia Storage & Furniture
4): Professional Consulting Services
5): Imaging Services
6): OEM Products

The Company's products are marketed in the United States, Canada, Europe and Australia through its sales branches, independent sales offices and distributors ("Channel Partners"), and telesales groups. The Company utilizes multiple distribution channels to achieve the broadest market coverage for small, mid- and large-sized customers. The Company also uses inbound and outbound telesales in addition to catalogs to reach its customer base. The benefits provided by the direct sales organization are its national coverage, sales control and low variable costs. The benefits of the independent dealers are their speed to market and low fixed cost.

The Company is developing the Internet as an additional channel. This will include expanding web site capabilities to offer its user base a larger range of online ordering and service opportunities.

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany transactions have been eliminated in consolidation.

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as of the dates and for the periods presented. Actual results could differ from those estimates. Such estimates include the allowance for doubtful accounts, restructuring reserves, inventory reserves and recoverability of deferred tax assets.

Translation of Foreign Currencies—Operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency for each subsidiary. Assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect as of the balance sheet dates, and results of operations for each subsidiary are translated using the average rates in effect for the periods presented. Translation adjustments are reported as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in net earnings.

Cash and Cash Equivalents include highly liquid investments purchased with an original maturity of three months or less.

Short-term Investments represent debt securities, which are stated at fair value. The difference between amortized cost (cost adjusted for amortization of premiums and accretion of discounts which are recognized as adjustments to interest income) and fair value representing unrealized holding gains or losses, if material, are recorded as a separate component of stockholders' equity until realized. While the Company's intent is to hold debt securities to maturity, they are classified as available-for-sale because the sale of such securities may occur prior to maturity. Any gains and losses on the sale of debt securities are determined on a specific identification basis.

Inventories are valued at the lower of cost or market. Cost of merchandise inventories purchased for resale is determined on the last-in, first-out ("LIFO") method for domestic inventories, which was approximately $0.5 million and $0.7 million at May 31, 2002 and May 31, 2001, respectively. Cost of the remainder of the inventories is determined on the first-in, first-out ("FIFO") method. Costs included in inventories consist of materials, labor and manufacturing overhead, which are related to the purchase and production of inventories.

Property, Plant and Equipment, including significant improvements to existing facilities, are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, which are as follows: Land improvements 10-30 years; buildings 20-50 years; machinery and equipment 3-15 years; furniture and fixtures 3-10 years. Leasehold improvements are depreciated over the shorter of their useful lives or the term of the lease. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on projected undiscounted cash flows associated with the affected assets. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Fair value is determined based on market quotes, if available, or is based on valuation techniques. Expenditures for renewals, replacements and improvements are capitalized. Maintenance and repairs are charged to operating expenses as incurred.

Goodwill represents the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Goodwill is amortized on a straight-line basis over periods not exceeding 25 years. Goodwill amortization amounted to $150,000, $4,832,000 and $259,000 in fiscal 2002, 2001 and 2000, respectively. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. At May 31, 2001 the Company wrote-off the remaining goodwill from the acquisition of its imaging services subsidiary in the amount of $3.7 million due to its impairment. Such impairment write-off is included in the goodwill amortization for fiscal 2001. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", the Company will cease amortization of goodwill as of June 1, 2002.

Shipping and Handling Fees and Costs—In September 2000, the Emerging Issues Task Force issued EITF 00-10, Accounting for Shipping and Handling Fees and Costs ("EITF 00-10"). EITF 00-10 requires shipping and handling fees billed to customers to be classified as revenue and the classification of shipping and handling costs to be disclosed in the notes to the consolidated financial statements if they are not classified as cost of sales. The Company includes shipping and handling fees billed to customers in revenues, net of the related shipping and handling costs. Shipping and handling costs included as a reduction to revenues totaled $4.7 million, $5.4 million and $6.8 million for fiscal 2002, 2001 and 2000, respectively.

Treasury Stock—Shares of the Company that are repurchased are treated as Treasury stock and are accounted for under the cost method.

Research and Development Costs—The Company's research and development activities are primarily related to the development of new products and services in the document management area and the improvement of existing products in the mobile storage, high-speed mailing, forms handling equipment and furniture areas. Expenditures for research and development were $0.5 million, $0.7 million and $0.9 million in fiscal 2002, 2001 and 2000, respectively.

Income Taxes—Deferred income taxes are provided for temporary differences between financial statements and income tax reporting, in accordance with SFAS No. 109, "Accounting for Income Taxes."

Stock-based Compensation—The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."

Concentrations of Credit Risk—Financial instruments, which potentially subject the Company to a concentration of credit risk, principally consist of cash and cash equivalents, short-term investments and trade accounts receivable. The Company places its cash and cash equivalents and short-term investments with what it believes are high credit quality financial institutions. The Company sells its products primarily to companies in North America, Europe and Australia. The Company maintains reserves for potential credit losses, but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area.

Reclassifications—Certain reclassifications have been made to the fiscal 2001 and 2000 financial statements to conform to the fiscal 2002 presentation.

Recently Issued Accounting Pronouncements—In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activites." This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company adopted SFAS No. 133 on June 1, 2001. The adoption of SFAS No. 133 did not have a material impact on its financial position, results of operations or cash flows.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC and was effective the first fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation in accordance with APB Opinion No. 20, "Accounting Changes." Subsequently, SAB Nos. 101A and 101B were issued to delay the implementation of SAB No. 101.

After evaluation of the Company's revenue recognition policies compared to the guidance in SAB No. 101, the Company changed its accounting policy for revenue from mobile file storage equipment. Adoption of the change in accounting in fiscal 2001 resulted in revenue being recorded only after installation of the equipment on customer premises rather than upon shipment, thus postponing revenue recognition by an average of two months. The cumulative effect of a change in accounting principle was $0.3 million.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which eliminates the pooling of interests method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired

in a business combination. The Company adopted SFAS No. 141 for business combinations initiated after June 30, 2001.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Asset" which addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. The Company will adopt SFAS No. 142 on June 1, 2002. Upon adoption of SFAS No. 142, the Company will stop the amortization of goodwill that resulted from business combinations initiated prior to the adoption of SFAS No. 141. The Company evaluated goodwill under the SFAS No. 142 transitional impairment test and has determined that there will not be an impairment loss.

The Company will adopt SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective June 1, 2002. SFAS No. 144 addresses financial accounting and 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 to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that Opinion). Although the Company has not completed its assessment, it does not expect the adoption of SFAS No. 144 to have a material effect on the consolidated financial position or results of operations of the Company.

2. Short-Term Investments

The Company's short-term investments have been classified as available-for-sale securities. The fair value of available-for-sale securities at May 31, 2002 and May 31, 2001 are presented below. Available-for-sale securities are classified as current assets and generally mature within three months. The amortized cost of the investment securities approximates fair market value and unrealized holding gains and losses were not material for any periods presented.

	May 31
	2002		2001
Corporate obligations	$	1,105,000	$	2,269,000
U.S. Government obligations		1,208,000		696,000

	$	2,313,000	$	2,965,000

3. Inventories

	May 31
	2002			2001
Raw materials	$	2,867,000		$	3,389,000
Work in process		348,000			272,000
Finished goods		1,697,000			1,821,000
LIFO reserve		(245,000	)		(378,000	)

	$	4,667,000		$	5,104,000

The change in the LIFO inventory reserve increased earnings before income taxes by $133,000 and $140,000 in fiscal 2002 and 2001, respectively and decreased earnings before income taxes by $42,000 in fiscal 2000.

4. Property, Plant and Equipment

	May 31
	2002			2001
Land and improvements	$	366,000		$	366,000
Buildings and improvements		7,001,000			6,985,000
Machinery and equipment		16,753,000			17,308,000
Furniture and fixtures		9,324,000			9,300,000
Leasehold improvements		458,000			473,000

		33,902,000			34,432,000
Accumulated depreciation		(27,927,000	)		(26,916,000	)

	$	5,975,000		$	7,516,000

5. Long-Term Debt and Revolving Line of Credit

The Company had no long-term debt outstanding as of May 31, 2002 and May 31, 2001.

As of May 31, 2002, the Company has a secured revolving line of credit of $5 million with a bank that will expire on October 31, 2002. In connection with the line of credit, the Company granted to the bank a continuing security interest in all accounts receivable, inventory, equipment and intangibles. Borrowings are available at the prime rate plus one-half percent. The Company had no borrowings outstanding under this line as of May 31, 2002. Under the line of credit, the Company must maintain certain financial covenants including a minimum level of tangible net worth, a minimum quick asset ratio and a minimum ratio of total liabilities to tangible net worth. The Company was in compliance with all of the financial covenants at May 31, 2002.

The Company's Australian subsidiary has a $169,000 overdraft facility with a bank and has granted to the bank a security interest in all of its assets. Borrowings are available at the bank's reference rate plus margin plus 4%. There were no borrowings outstanding under this facility at May 31, 2002.

Cash paid for interest which approximates interest expense was $14,000, $20,000 and $615,000 for fiscal 2002, 2001 and 2000, respectively. Interest paid includes the commitment fee on the Company's

line of credit in the amounts of $13,000, $11,000 and $56,000 for fiscal 2002, 2001 and 2000, respectively.

6. Other Accrued Liabilities

	May 31
	2002		2001
Payroll and related benefits	$	2,195,000	$	2,253,000
Amount due to independent sales reps		1,013,000		1,555,000
Other		1,880,000		3,469,000

	$	5,088,000	$	7,277,000

7. Income Taxes

The (benefit) provision for income taxes is comprised of the following:

	Year Ended May 31
	2002			2001			2000
Current:
Federal	$	(2,376,000	)	$	(4,566,000	)	$	4,970,000
State		(90,000	)		—			1,480,000
Foreign		183,000			472,000			726,000

	$	(2,283,000	)		(4,094,000	)		7,176,000

Deferred:
Federal		306,000			(1,392,000	)		(711,000	)
State		49,000			(1,156,000	)		(176,000	)
Foreign		37,000			30,000			(17,000	)

		392,000			(2,518,000	)		(904,000	)

	$	(1,891,000	)	$	(6,612,000	)	$	6,272,000

The reconciliation between the Federal statutory rate and the Company's effective tax rate is as follows:

	2002		2001		2000
Federal income taxes at statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.5		4.1		4.8
Non-deductible goodwill	(1.3	)	(0.4	)	0.6
Foreign taxes	(0.4	)	0.4		1.6
Other	2.0		(3.1	)	0.2

Effective tax rate	35.8	%	36.0	%	42.2	%

purposes, and (b) operating losses and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax assets and liabilities are as follows:

		May 31
		2002			2001
Deferred tax assets
Post-retirement benefit obligation		$	544,000		$	517,000
Reserves not currently deductible			1,158,000			1,355,000
Vacation accrual			329,000			340,000
Allowance for doubtful accounts			330,000			402,000
Pension benefit			267,000			—
Unrealized foreign exchange losses			651,000			790,000
Goodwill			1,726,000			1,869,000
Differences between book and tax basis of property			200,000			58,000
Net operating loss carryforward:
	Federal		65,000			383,000
	State		968,000			863,000
AMT and foreign tax credit carryforward			475,000			—
Valuation allowance			(120,000	)		—
Other			128,000			—

			6,721,000			6,577,000

Deferred tax liabilities
Pension obligation			—			(1,273,000	)
Other			(674,000	)		(448,000	)

			(674,000	)		(1,721,000	)

Net deferred tax assets		$	6,047,000		$	4,856,000

	May 31
	2002			2001
Net deferred tax assets comprised the following:
Current assets	$	1,927,000		$	3,002,000
Non-current assets		4,240,000			1,854,000
Valuation allowance		(120,000	)		—

Net deferred tax assets	$	6,047,000		$	4,856,000

The Company has not provided for income taxes on undistributed earnings of certain foreign subsidiaries, which the Company intends to reinvest indefinitely. The Company has provided for a deferred tax asset valuation allowance of $120,000, all of which arose during the current year. A valuation allowance has been provided where it is more likely than not that the deferred tax assets relating to certain loss carryforwards will not be realized. Cash paid (received) for income taxes, net of refunds, was: $(3.8 million), $(0.7 million) and $7.0 million in fiscal 2002, 2001 and 2000, respectively.

The state net operating loss benefit is carried forward from 5 to 20 years depending on the state jurisdiction.

On March 9, 2002, President Bush signed into law H.R. 3090, the "Job Creation and Worker Assistance Act of 2002." The Act allows for additional federal depreciation expense for specific asset acquisitions purchased by the Company after September 10, 2001. Additionally, the Act increases the carryback period of federal net operating losses generated in tax years ending in 2001 and 2002 from two years to five years. The Company previously filed a claim to carryback the losses generated in fiscal 2001 to the two previous tax years. As a result of the Act, the Company has elected to amend the originally filed claim to carryback the losses generated in fiscal 2001 to the five previous tax years. The Company has also elected to carryback the losses generated in fiscal 2002 to the five previous years. The refund from both carryback claims is reported in the income tax receivable balance.

8. Employee Benefit Plans

Pension Plan

The Company maintains a defined benefit pension plan for certain domestic employees. Plan benefits are based on compensation and length of service and provide for normal retirement at age 65. The Company's policy is to make annual contributions to the pension plan between the ERISA minimum and the maximum tax-deductible amount allowed.

In fiscal 1999, the Company suspended the defined benefit pension plan to limit both new participation and further pension credit for current participants. The result of the suspension is that after March 31, 1999, no new participants have been eligible to join the plan. Also, after March 31, 1999, active participants in the plan do not receive any further pension benefit credits. Active participants in the plan as of March 31, 1999, will be eligible, upon retirement, to receive a pension based upon the pension credits they have earned through March 31, 1999.

In fiscal 2002 and 2001, the Company paid benefits to 47 and 107 terminated vested participants, respectively, in the form of lump sum payments, which resulted in a settlement loss of approximately $45,000 and $93,000, respectively.

On May 31, 2002, the Company's defined benefit pension plan assets were $0.7 million lower than the benefit obligation. In accordance with SFAS No. 87, "Employers' Accounting for Pensions", a non-cash charge to equity of $2.9 million, net of tax benefits of $1.8 million, was recorded.

The plan's assets are invested in short-term money market instruments, fixed income securities and equities.

The following table sets forth the plan's funded status:

	2002			2001
Changes in Benefit Obligation:
Benefit obligation at beginning of year	$	25,191,000		$	23,900,000
Service cost		—			—
Interest cost		1,868,000			1,812,000
Settlements		(62,000	)		(136,000	)
Actuarial loss		413,000			175,000
Assumption change		1,290,000			829,000
Benefits paid		(1,378,000	)		(1,389,000	)

Benefit obligation at end of year		27,322,000			25,191,000

Changes in Plan Assets:
Fair value at beginning of year		30,412,000			31,914,000
Actual return on plan assets		(2,260,000	)		148,000
Settlements		(111,000	)		(261,000	)
Benefits paid		(1,378,000	)		(1,389,000	)

Fair value at end of year		26,663,000			30,412,000

Funded status		(659,000	)		5,221,000
Unrecognized actuarial loss (gain)		4,704,000			(2,087,000	)

Net amount recognized	$	4,045,000		$	3,134,000

(Accrued) prepaid benefit cost	$	(659,000	)	$	3,134,000
Accrued benefit liability		—			—
Accumulated other comprehensive income		4,704,000			—

Net amount recognized	$	4,045,000		$	3,134,000

	2002		2001
Weighted-average assumptions as of May 31:
Discount rate	7.25	%	7.50	%
Expected return on assets	9.50	%	9.50	%
Rate of compensation increase	N/A		N/A

Net periodic pension income was $910,000, $1,347,000 and $152,000 for fiscal 2002, 2001 and 2000, respectively, and included the following components.

	2002			2001			2000
Components of net periodic pension income:
Service cost	$	—		$	—		$	—
Interest cost		1,868,000			1,812,000			1,771,000
Expected return on plan assets		(2,823,000	)		(2,966,000	)		(2,134,000	)
Recognized net actuarial (gain) loss		—			(286,000	)		211,000
Settlement loss		45,000			93,000			—

Net periodic pension income	$	(910,000	)	$	(1,347,000	)	$	(152,000	)

401(k) Plan

The Company provides a 401(k) Plan (tax deferred savings plan) for its domestic employees. The plan provides that the Company make contributions in either cash or common stock, at its option, equal to 50% of contributions made by participating employees up to a maximum of 3% of employee's salary. The plan also provides for additional Company contributions up to a maximum of 75% of participating employees' contributions, for each fiscal year in which net earnings are 5% or more of revenues. Company contributions charged to earnings were $416,000, $597,000 and $820,000 for fiscal 2002, 2001 and 2000, respectively. Certain additional transitional contributions were made to employee accounts for eligible plan participants as of March 31, 1999 during fiscal 2002, 2001 and 2000 in the amounts of $34,000, $62,000 and $130,000, respectively.

Postretirement Plan

The Company has a plan that provides certain health care benefits for all of its domestic retired employees who meet certain age and service requirements while working for the Company. Generally, Company-provided health care coverage is coordinated with Medicare upon the retiree reaching the age of 65.

In fiscal 2001, the plan was amended to increase the eligibility age over the next few years from age 60 and 10 years of service beginning in fiscal 2002 to age 65 and 10 years of service beginning in fiscal 2005.

Net postretirement benefit cost was $319,000, $204,000 and $301,000 for fiscal 2002, 2001 and 2000, respectively. The Company's postretirement health care plans are not funded.

Accumulated postretirement benefit obligation:

	May 31
	2002			2001
Changes in benefit obligation:
Benefit obligation at beginning of year	$	1,820,000		$	2,117,000
Service cost		99,000			65,000
Interest cost		181,000			131,000
Actuarial loss		722,000			31,000
Amendment change		—			(347,000	)
Assumption change		70,000			44,000
Benefits paid		(246,000	)		(221,000	)

Benefit obligations at end of year		2,646,000			1,820,000
Unrecognized prior service cost		340,000			367,000
Unrecognized net actuarial loss		(1,642,000	)		(916,000	)

Accrued postretirement benefit cost	$	1,344,000		$	1,271,000

Net postretirement benefit cost consisted of the following components:

	2002		2001		2000
Service cost	$	99,000	$	65,000	$	106,000
Interest cost on accumulated postretirement benefit obligation		181,000		131,000		151,000
Net amortization and deferrals		39,000		8,000		44,000

Net postretirement benefit cost	$	319,000	$	204,000	$	301,000

The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of June 1, 2001 was 10% decreasing linearly each successive year until it reaches 5% in 2006, after which it will remain constant. A one-percentage-point increase in the assumed health care cost trend rates in fiscal 2002 would increase the accumulated postretirement benefit obligation, service cost and interest cost components of the net periodic postretirement benefit cost by approximately $161,000, $23,000 and $20,000, respectively. The impact of a 1% decrease in the trend rates in fiscal 2002 would decrease these components by approximately $134,000, $18,000 and $16,000, respectively. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.25% for fiscal 2002 and 7.50% for fiscal 2001.

9. Stock Option Plans, Stock Purchase Right Plan, Leveraged Stock Purchase Plan, Warrants and Stock Repurchase Plan

Under the 1991 Employee Stock Option Plan (the "1991 Option Plan"), the Company may grant options to purchase shares of common stock to employees at prices not less than the fair market value of a share of stock at the date of grant for incentive stock options and not less than 85% of fair market value of a share of stock for non-statutory stock options. The options generally expire 10 years from the date of grant. The options generally become exercisable 25% per year over a 4-year period for those options granted prior to fiscal 1999 and, for those options granted thereafter, 37¹/2% of the grant becomes exercisable 18 months after the date of grant with the remainder becoming exercisable ratably

by quarter so as to be fully exercisable 5 years from the date of grant. The 1991 Option Plan expired on March 21, 2001, and no further options may be granted from the plan after that date.

On December 14, 2000, an option to purchase 250,000 shares of common stock of the Company was granted to the Company's President and Chief Executive Officer. The option was granted outside of the Company's 1991 Option Plan. The option was granted at the fair market value of a share of stock on the date of grant ($2.125). The option expires 10 years from the date of grant and becomes exercisable in four annual installments commencing one year after the grant date.

On April 18, 2001, the Board of Directors of the Company approved the 2001 Nonstatutory Stock Option Plan (the "2001 Nonstatutory Option Plan"). Under the 2001 Nonstatutory Option Plan, options to purchase shares of common stock may be granted at a price that is not less than 85% of the fair market value of a share of stock on the date of grant. The options generally become exercisable at a rate of 37¹/2% 18 months after the date of grant with the remainder becoming exercisable ratably by quarter so as to be fully exercisable 5 years from the date of grant. The options expire 10 years from the date of grant.

On October 16, 2001, the 2001 Stock Option Plan (the "2001 Option Plan") was approved by the Company's stockholders. Under the 2001 Option Plan, the Company may grant options to purchase shares of common stock to employees at prices not less than the fair market value of a share of stock on the date of grant. The options generally expire 10 years from the date of grant. The options generally become exercisable at a rate of 25% one year after the date of grant with the remainder becoming exercisable at a rate of 6.25% over the next 12 quarters so as to be fully exercisable 4 years from the date of grant. As of May 31, 2002, no options had been granted to employees under the 2001 Option Plan.

Activity under the option plans is as follows:

	Number of Shares		Weighted Average Exercise Price
Outstanding, June 1, 1999 (282,875 exercisable at weighted average price of $7.91)	655,625		$	8.84
Granted (weighted average fair value of $1.93)	43,000			5.62
Exercised	(5,000	)		6.00
Canceled	(19,875	)		7.75

Outstanding, May 31, 2000 (396,245 exercisable at weighted average price of $8.50)	673,750			8.69
Granted (weighted average fair value of $1.46)	692,000			2.87
Exercised	—			—
Canceled	(509,625	)		8.28

Outstanding, May 31, 2001 (227,927 exercisable at weighted average price of $7.20)	856,125			4.23
Granted (weighted average fair value of $2.20)	93,000			4.10
Exercised	—			—
Canceled	(151,375	)		6.83

Outstanding, May 31, 2002 (292,914 exercisable at weighted average price of $4.94)	797,750			3.72

Additional information regarding options outstanding as of May 31, 2002 is as follows:

		Options Outstanding			Options Exercisable
Exercise Range of Prices	Number Outstanding	Weighted Avg. Remaining Contractual Life (yrs.)	Weighted Avg. Exercise Price		Number Exercisable	Weighted Avg. Exercise Price
$2.13	303,000	8.5	$	2.13	78,000	$	2.13
$2.63 - $3.50	195,000	8.5		3.28	44,372		3.13
$3.60 - $6.00	178,000	8.0		4.36	53,258		5.14
$6.25 - $11.88	111,750	4.4		7.02	109,517		7.03
$12.50	10,000	6.1		12.50	7,767		12.50

$2.13 - $12.50	797,750	7.8		3.72	292,914		4.94

At May 31, 2002, 250,000, 93,000 and 50,000 shares were available for future grants under the 2001 Option Plan, Nonstatutory Stock Option Plan and Directors Plan, respectively.

SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income and earnings per share. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards.

These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions:

	2002		2001		2000
Risk-free interest rate	4.66	%	5.18	%	7.44	%
Dividend yield	0	%	0	%	2.5	%
Volatility factor	53.6	%	47.4	%	40.9	%
Expected life (in months following vesting)	12		12		12

The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the awards had been amortized to expense over the vesting period of the awards, pro forma net (loss) earnings would have been (in thousands, except per share data):

		2002			2001			2000
Net (Loss) Earnings
	As Reported	$	(3,390	)	$	(12,084	)	$	8,574
	Pro Forma		(3,620	)		(11,970	)		8,347
Basic and Diluted (Loss) Earnings Per Share
	As Reported	$	(0.66	)	$	(2.34	)	$	1.67
	Pro Forma		(0.70	)		(2.31	)		1.62

In October 1996, the Company declared a dividend of one Preferred Stock Purchase Right ("Right") for each outstanding share of common stock. The Right entitles a stockholder to purchase one one-hundredth of a share of preferred stock at $35 per Right exercisable after a person acquires 15% or more of the Company's common stock or announces a tender offer which could result in such person owning 15% or more of the common stock. Each one one-hundredth of a share of preferred stock has terms designed to make it substantially the economic equivalent of one share of common stock. Under certain circumstances, if a person acquires 15% or more of the common stock, the Rights permit the holders to purchase the Company's common stock having a market value of twice the exercise price of the Rights, in lieu of the preferred stock. In addition, in the event of certain business combinations, the Rights permit purchase of the common stock of an acquiring person at a 50% discount. Rights held by an acquiring person will become null and void in both cases. The Rights are subject to redemption by the Company's Board of Directors for $.001 for each Right. The Rights expire on October 23, 2006.

In September 2001, the Rights agreement was amended so that stock purchase rights issued thereunder will be triggered if, without prior Board of Directors approval, a person or group becomes the beneficial owner of 20% of the Company's outstanding shares (the previous trigger level of the rights was 15%). The amendment also confirmed that the act of participating in a demand for a special meeting of stockholders will not by itself trigger the rights.

Effective July 29, 2002, the Rights agreement was amended to make the provisions of the Rights agreement, as amended, inapplicable to the transactions contemplated by the Merger Agreement

entered into among T Acquisition L.P. and T Acquisition Co. and the Company. See Note 19, "Subsequent Event" for additional information on the Merger Agreement.

In October 1999, the Company implemented a Leveraged Stock Purchase Plan (the "Plan") with certain executive officers and key employees of the Company. The Plan allows an employee to borrow funds from the Company to acquire a specified number of common shares. An equivalent number of shares of common stock were also granted to each individual. The stock grant vests after three years. All certificates are held by the Company as collateral against the notes receivable. The note and accrued interest will be forgiven after three years, if the employee continues employment with the Company during that period. The Company used 207,500 shares of Treasury Stock to implement the Plan. The stock subscriptions-notes receivable related to the stock grants are offset in Stockholders' Equity.

Effective July 2000, the Company's Board of Directors approved the repurchase of up to 300,000 shares of the Company's Common Stock. During fiscal 2000, the Company repurchased 33,100 shares for $218,000. The Company did not renew the stock repurchase program, which expired in July 2000.

On December 14, 2000, the Company's Board of Directors approved the issuance of a warrant for 13,000 shares of the Company's Common Stock to a recruiting firm in exchange for its services. The exercise price is $2.125, the closing price for the Company's Common Stock on the date of issuance. The warrant is immediately exercisable and expires on January 1, 2004. The warrant had not been exercised as of May 31, 2002. The estimated fair value of the warrant of $10,000 was recorded as an expense in fiscal 2001.

Effective September 2001, the Company's Board of Directors approved the repurchase of up to 10% of the issued and outstanding shares of the Company's Common Stock. During fiscal 2002, the Company repurchased 112,500 shares for $481,000 between September 2001 and January 2002. The Company did not repurchase any shares after January 17, 2002. The stock repurchase program will expire on September 16, 2002.

10. Commitments and Contingencies

The Company has been involved from time to time in various litigation and product liability matters arising in the ordinary course of business. Although the final outcome of any unresolved matters cannot be determined, it is management's opinion that the final resolution of these matters will not have a material effect on the Company's financial position or results of operations.

The Company and its subsidiaries are obligated under leases for real and personal property expiring at various dates through 2007. The future minimum rental payments under these lease agreements at May 31, 2002 are as follows:

2003	$	2,844,000
2004		2,247,000
2005		1,343,000
2006		499,000
2007		26,000

	$	6,959,000

Total rentals charged to expense amounted to $3.1 million, $3.4 million and $3.1 million in fiscal 2002, 2001 and 2000, respectively.

11. Major Customer

No single customer accounted for greater than 10% of consolidated revenues in fiscal 2002, 2001 or 2000. One customer accounted for approximately 10% of the outstanding accounts receivable balance as of May 31, 2002. No single customer accounted for greater than 10% of the outstanding accounts receivable balance as of May 31, 2001.

12. Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or chief decision making group, in deciding how to allocate resources and in assessing performance. The Chief Executive Officer is the Company's chief decision maker. The Company operates and is managed internally by four geographic operating segments. The operating segments include United States, Canada, the Netherlands and Australia. Outside the United States, each operating segment has a general manager who reports to the Vice President, International, who reports to the Chief Executive Officer. Within the United States, the individuals responsible for operations, marketing and sales report directly to the Chief Executive Officer.

Information about segments for the years ended May 31:

		2002			2001			2000
Revenues:
	United States	$	80,798,000		$	91,564,000		$	105,549,000
	Canada		19,368,000			22,127,000			20,198,000
	Netherlands		3,177,000			4,408,000			5,019,000
	Australia		3,367,000			3,929,000			3,760,000
	Elimination of intersegment revenue		(2,763,000	)		(3,506,000	)		(3,958,000	)

	Consolidated Total	$	103,947,000		$	118,522,000		$	130,568,000

		2002			2001			2000
(Loss) income before income taxes:
	United States	$	(5,656,000	)	$	(19,821,000	)	$	13,968,000
	Canada		169,000			691,000			(49,000	)
	Netherlands		261,000			804,000			1,134,000
	Australia		(55,000	)		(40,000	)		(207,000	)

	Consolidated Total	$	(5,281,000	)	$	(18,366,000	)	$	14,846,000

		2002		2001		2000
Depreciation and amortization:
	United States	$	2,296,000	$	8,709,000	$	3,390,000
	Canada		325,000		367,000		492,000
	Netherlands		56,000		62,000		59,000
	Australia		47,000		32,000		65,000

	Consolidated Total	$	2,724,000	$	9,170,000	$	4,006,000

		2002		2001		2000
Property, plant and equipment, net of accumulated depreciation:
	United States	$	5,357,000	$	6,814,000	$	11,370,000
	Canada		304,000		359,000		555,000
	Netherlands		110,000		123,000		152,000
	Australia		204,000		220,000		176,000

	Consolidated Total	$	5,975,000	$	7,516,000	$	12,253,000

		2002			2001			2000
Total assets:
	United States	$	44,402,000		$	56,726,000		$	67,960,000
	Canada		7,799,000			8,575,000			8,646,000
	Netherlands		6,282,000			6,117,000			6,158,000
	Australia		1,449,000			1,634,000			1,532,000
	Elimination of intersegment loans		(3,976,000	)		(4,437,000	)		(3,411,000	)
	Elimination of intersegment investments		(4,179,000	)		(4,177,000	)		(4,187,000	)
	Elimination of intersegment receivables and other		(1,628,000	)		(2,281,000	)		(3,405,000	)

	Consolidated Total	$	50,149,000		$	62,157,000		$	73,293,000

Geographic revenues are based on the country from which customers are invoiced.

13. Per Share Information

Basic (loss) earnings per share is computed by dividing net loss (earnings) by the weighted average common shares outstanding for the period while diluted earnings per share also includes the dilutive impact of stock options. Basic and diluted (loss) earnings per share for fiscal May 31, 2002, 2001 and 2000, respectively, are calculated as follows (in thousands, except per share data):

		2002			2001			2000
Weighted average shares outstanding			5,148			5,173			5,140
Net (loss) earnings		$	(3,390	)	$	(12,084	)	$	8,574
	Basic (loss) earnings per share	$	(0.66	)	$	(2.34	)	$	1.67

Weighted average shares outstanding			5,148			5,173			5,140
Dilutive effect of options			—			—			2

	Total		5,148			5,173			5,142
Net (loss) earnings		$	(3,390	)	$	(12,084	)	$	8,574
	Diluted (loss) earnings per share	$	(0.66	)	$	(2.34	)	$	1.67

14. Selected Quarterly Data (Unaudited)

								Loss Per Share
Fiscal Year Ended			Gross Profit⁽¹⁾					Loss Per Share
Fiscal Year Ended	Revenues		Gross Profit⁽¹⁾		Net Loss			Basic			Diluted
	(In thousands, except per share data)
May 31, 2002
First Quarter	$	28,505	$	11,155	$	(799	)	$	(.15	)	$	(.15	)
Second Quarter		26,472		10,072		(658	)		(.13	)		(.13	)
Third Quarter		23,096		8,543		(1,156	)		(.23	)		(.23	)
Fourth Quarter		25,874		9,547		(777	)		(.15	)		(.15	)

	$	103,947	$	39,317	$	(3,390	)		(.66	)		(.66	)

May 31, 2001
First Quarter	$	30,230	$	10,764	$	(3,121	)	$	(.60	)	$	(.60	)
Second Quarter		29,962		11,389		(1,728	)		(.34	)		(.34	)
Third Quarter		29,143		11,226		(2,325	)		(.45	)		(.45	)
Fourth Quarter		29,187		10,701		(4,910	)		(.95	)		(.95	)

	$	118,522	$	44,080	$	(12,084	)		(2.34	)		(2.34	)

⁽¹⁾: Revenues less cost of revenues.

The net loss for the first quarter of fiscal 2001 includes a charge of $330,000 ($0.06 loss per share) for the cumulative effect of a change in accounting principle.

15. Related Party Transaction

Pursuant to the employment agreement between the Company and Gary W. Ampulski, the Company's CEO, in March 2001, the Company loaned Mr. Ampulski the principal sum of $139,503 to enable him to repay the outstanding balance of a loan payable to his former employer. The loan is

secured by Mr. Ampulski's home; it bears interest at the rate of 4.3% per annum and principal and interest payments are made through payroll deductions on a semi-monthly basis ending on February 28, 2004. The balance of the loan was $123,660 and $136,402 as of May 31, 2002 and 2001, respectively. Interest income recorded in fiscal 2002 and 2001 was $5,605 and $1,486, respectively.

16. Asset Sales

Pursuant to an Agreement for Purchase and Sale of Assets (the "Agreement"), by and between the Company and Bell & Howell Document Management Products Company, a wholly owned subsidiary of Bell & Howell Company ("Bell & Howell"), the Company sold its Field Services Group to Bell & Howell on June 1, 1999. The price of the Purchased Assets, as defined in the Agreement, consists of an initial cash payment of $11.2 million, the assumption of certain liabilities and obligations of the Company valued at an estimated $4.3 million and up to an additional $3.5 million payable to the Company for changes in certain accounts attributable to the Field Service Group. In connection with the sale the Company recorded a pre-tax gain on sale of $13.8 million in the first quarter of fiscal year 2000.

On February 16, 2001, the Company completed the sale of unutilized property and a manufacturing facility for $2.9 million. In connection with the sale, the Company recorded a pre-tax gain of $1.1 million in the third quarter of fiscal 2001.

1517. Consolidation Activities

On June 22, 1999, the Company announced the consolidation of its paper manufacturing operations to its main plant located in Mayville, Wisconsin. In September 1999, the Company closed its paper manufacturing facility located in Turlock, California and transferred the inventory and equipment to Mayville. As a result of the consolidation, the Company recorded a pre-tax charge of approximately $~~435,000~~0.4 million in the first quarter of fiscal 2000.

1618. Acquisitions

On May 25, 2000, the Company purchased substantially all of the operating assets of Docucon for approximately $5.1 million, which was a combination of cash and assumed liabilities. Approximately $4.5 million of the purchase price was allocated to goodwill with the remainder allocated to the gross assets and liabilities acquired. The Docucon purchase gave the Company the capacity to convert customers' documents to digital format for desktop access. At May 31, 2001, the Company wrote-off the remaining goodwill of $3.7 million from the acquisition due to its impairment.

4419. Subsequent Event

As of July 29, 2002, the Company entered into a Merger Agreement with T Acquisition Co. and T Acquisition L.P., affiliates of HS Morgan ~~INDEPENDENT~~Limited ~~AUDITORS~~Partnership, pursuant to which T Acquisition Co. will merge with and into the Company. Under the terms of the Merger Agreement, each share of the Company's ~~REPORT~~ common stock will be converted into the right to receive $5.85 per share in cash, or total

~~To the Board of Directors and Stockholders of Tab Products Co.:~~ 66

We ~~have~~consideration ~~audited the consolidated financial statements~~ of ~~Tab~~approximately ~~Products Co. and its subsidiaries as of May~~$34 31million, ~~2001~~including ~~and~~outstanding ~~2000,~~stock ~~and~~options. ~~for~~The ~~each~~merger ofis ~~the~~expected ~~three~~to ~~years~~close in the ~~period~~fourth ~~ended May 31,~~calendar ~~2001,~~quarter ~~and~~of ~~have~~2002. ~~issued~~Consummation ~~our~~of ~~report~~the ~~thereon~~transaction ~~dated~~is subject ~~June 28, 2001; such financial statements and report are included in your fiscal 2001 Annual Report~~ to ~~Stockholders.~~the ~~Our~~approval ~~audits~~of ~~also included~~ the ~~financial~~Company's ~~statement~~stockholders, ~~schedule~~receipt of ~~Tab~~all ~~Products~~necessary ~~Co.~~regulatory approvals, ~~for~~ the ~~years~~buyer ~~ended~~entering ~~May 31,~~into ~~2001,~~definitive ~~2000~~financing agreements and ~~1999,~~certain ~~listed~~other ~~in Item 14(A)(2)~~conditions. ~~This~~The ~~financial statement schedule is the responsibility~~Merger ofAgreement ~~the~~was ~~Company's~~filed ~~management. Our responsibility is to express an opinion based~~ on ~~our audits. In our opinion~~July 29, ~~such~~2002 ~~financial~~as ~~statement~~an ~~schedule,~~exhibit ~~when considered in relation~~ to ~~the basic financial statements taken as~~ a ~~whole,~~Current ~~presents~~Report ~~fairly~~on ~~in all material respects the information set forth herein~~Form 8-K.

~~DELOITTE & TOUCHE LLP~~ 67

San Jose, California June 28, 2001 (August 13, 2001 as to Note 4)

TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

Allowance for Doubtful Accounts Receivable	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Uncollectible Accounts Charged to Reserve		Balance at End of Period
Year ended May 31, 2002	$	889,000	$	19,000	$	41,000	$	867,000
Year ended May 31, 2001	$	1,095,000	$	519,000	$	725,000	$	889,000
Year ended May 31, 2000	$	936,000	$	452,000	$	293,000	$	1,095,000
Year ended May 31, 1999	$	947,000	$	380,000	$	391,000	$	936,000

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PART I
PART II
TAB PRODUCTS CO. CONSOLIDATED SELECTED FINANCIAL DATA, FIVE YEARS ENDED MAY 31 (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND RATIO DATA)
PART III
SUMMARY COMPENSATION TABLE
FISCAL YEAR-END OPTION VALUES
PART IV
TAB PRODUCTS CO. CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE FORM 10-K ITEM 14 FISCAL YEARS ENDED MAY 31, 2002, 2001 AND 2000
INDEPENDENT AUDITORS' REPORT
TAB PRODUCTS CO. CONSOLIDATED STATEMENTS OF OPERATIONS
TAB PRODUCTS CO. CONSOLIDATED BALANCE SHEETS
TAB PRODUCTS CO. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TAB PRODUCTS CO. CONSOLIDATED STATEMENTS OF CASH FLOW
TAB PRODUCTS CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TAB PRODUCTS CO. AND SUBSIDIARY COMPANIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

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