UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

        ý             Quarterly

 Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended February 28, 2002

For the quarterly period ended November 30, 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 Registrant as specified in its charter)

 
  DELAWARE

  94-1190862

  (State of Incorporation)

  (IRS Employer Identification No.)

935 Lakeview Parkway, Suite 195

Vernon Hills, IL 60061

(Address of principal executive offices)

(847) 968-5400

(Registrant'’s telephone number -— including area code)

NOT APPLICABLE

Former name, former address and former fiscal year,

if changed since last report.

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

Indicate the number of shares outstanding of each of the issuer'’s classes of common stock, as of the latest practicable date. Common shares outstanding as of ~~November~~March 3031, ~~2001~~2002 - —5,~~122~~123,~~292~~915

TAB PRODUCTS CO.

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1	Financial Statements (Unaudited):
	Consolidated Condensed Balance Sheets November 30, 2001 and May 31, 2001
	Consolidated Condensed Balance Sheets
	Consolidated Condensed Statements of Earnings Three months and Six months ended November 30, 2001 and 2000
	February 28, 2002 and May 31, 2001
	Consolidated Condensed Statements of Cash Flows Six months ended November 30, 2001 and 2000
	Consolidated Condensed Statements of Earnings
	Notes to Consolidated Condensed Financial Statements
	Three months and Nine months ended February 28, 2002 and 2001
ITEM 2	Management's Discussion and Analysis of Financial Condition and Results of Operations
	Consolidated Condensed Statements of Cash Flows
ITEM 3	Quantitative and Qualitative Disclosure About Market Risks
	Nine months ended February 28, 2002 and 2001
PART II. OTHER INFORMATION
	Notes to Consolidated Condensed Financial Statements
ITEM 4	Submission of Matters to a Vote of Security Holders
ITEM 2	Management’s Discussion and Analysis of Financial
ITEM 6	Exhibits and Reports on Form 8-K
	Condition and Results of Operations
	Signatures
ITEM 3	Quantitative and Qualitative Disclosure About
	Market Risks
PART II. OTHER INFORMATION
ITEM 6	Exhibits and Reports on Form 8-K
	Signatures

TAB PRODUCTS CO.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(000'’s omitted except share and per share data)

	November 30, 2001			May 31, 2001
	February 28, 2002			May 31, 2001
ASSETS
Current Assets:
Cash and cash equivalents	$	89,~~439~~748		$	5,872
Short-term investments	21,~~396~~818			2,965
Accounts receivable, less allowances of $1,087 and $889 for doubtful accounts	18,927			23,507
Accounts receivable, less allowances of $1,151 and $889 for doubtful accounts	15,048			23,507
Inventories	5,~~312~~011			5,104
Income tax receivable	~~197~~221			4,764
Deferred income taxes	21,~~029~~930			3,002
Prepaid expenses	1,~~581~~092			1,548
Total Current Assets	3834,~~881~~868			46,762
Property, plant and equipment, net of accumulated depreciation of $27,724 and $26,916	6,654			7,516
Property, plant and equipment, net of accumulated depreciation of $28,133 and $26,916	6,236			7,516
Goodwill, net	2,~~512~~431			2,643
Deferred pension asset	3,~~554~~814			3,134
Deferred income taxes and other assets	34,~~900~~565			2,102
Total Assets	$	5551,~~501~~914		$	62,157
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	86,~~239~~521		$	10,816
Compensation payable	1,~~952~~795			2,290
Other accrued liabilities	54,~~288~~758			7,277
Total Current Liabilities	1513,~~479~~074			20,383
Non-current liabilities	1,271			1,271
Commitments and contingencies	-—			-—
STOCKHOLDERS’ EQUITY:
Preferred stock: $.01 par value, authorized 500,000 shares, issued-none	-—			-—
Common stock: $.01 par value, authorized 25,000,000 shares, issued – November 2001 – 7,792,761 shares and May 2001 - 7,742,137 shares	78			77
Common stock: $.01 par value, authorized 25,000,000 shares, issued — February 2002 — 7,802,384 shares and May 2001 — 7,742,137 shares	78			77
Additional paid-in capital	15,~~621~~662			15,236
Stock subscription – notes receivable	(198		)	(397		)
Stock subscription — notes receivable	(198		)	(397		)
Retained earnings	5655,~~517~~361			57,974
Treasury stock: November 2001 – 2,670,469 shares and May 2001 - 2,535,969 shares	(32,417		)	(31,597		)
Treasury stock: February 2002 — 2,678,469 shares and May 2001 — 2,535,969 shares	(32,452		)	(31,597		)
Accumulated other comprehensive loss	(~~850~~882		)	(790		)
Total Stockholders’ Equity	3837,~~751~~569			40,503
Total Liabilities and Stockholders’ Equity	$	5551,~~501~~914		$	62,157

See Notes to Unaudited Consolidated Condensed Financial Statements.

TAB PRODUCTS CO.

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)

(000'’s omitted except share and per share data)

	Three Months Ended						Six Months Ended
	Three Months Ended February 28,						Nine Months Ended February 28,
	November 30,						November 30,
	2002			2001			2002			2001
	2001			2000			2001			2000
Revenues	$	23,096		$	29,143		$	78,073		$	89,335
Revenues	$	26,472		$	29,962		$	54,977		$	60,192
Costs and Expenses:
Cost of revenues	1614,~~400~~553			1817,~~573~~917			3348,~~750~~303			3855,~~039~~955
Selling, general and administrative	10,~~993~~293			1415,~~004~~673			2333,~~360~~920			2945,~~057~~089
Research and development	128			162			267			359
Total Costs and Expenses	24,846			33,590			82,223			101,044
Total Costs and Expenses	27,521			32,739			57,377			67,455
Operating Loss	(1,750		)	(4,447		)	(4,150		)	(11,709		)
Operating Loss	(1,049		)	(2,777		)	(2,400		)	(7,263		)
Gain on sale of property, plant and equipment, net	5			1,064			11			1,064
Interest, net, and other	(729		)	~~(128~~28		)	~~114~~79			~~(15~~13		)
Loss before income taxes	(1,~~056~~774		)	(23,~~905~~355		)	(24,~~286~~060		)	(710,~~278~~632		)
Income tax benefit	(~~398~~618		)	(1,~~177~~029		)	(~~829~~1,447		)	(23,~~759~~788		)
Net loss before cumulative change in accounting principle	(~~658~~1,156		)	(12,~~728~~326		)	(12,~~457~~613		)	(46,~~519~~844		)
Cumulative effect of a change in accounting principle	-—			-—			-—			(330		)
Net Loss	$	(~~658~~1,156	)	$	(12,~~728~~326	)	$	(12,~~457~~613	)	$	(47,~~849~~174	)
Basic net loss per share before cumulative effect of a change in accounting principle	$	(0.1323	)	$	(0.3445	)	$	(0.2851	)	$	(01.8833	)
Cumulative effect of a change in accounting principle	-—			-—			-—			(0.06		)
Basic net loss per share	$	(0.1323	)	$	(0.3445	)	$	(0.2851	)	$	(01.9439	)
Shares used in computing basic net loss per share	5,~~148~~122,~~809~~564			5,~~134~~166,~~450~~678			5,~~172~~156,~~769~~218			5,~~170~~169,~~578~~292
Diluted net loss per share before cumulative effect of a change in accounting principle	$	(0.1323	)	$	(0.3445	)	$	(0.2851	)	$	(01.8833	)
Cumulative effect of a change in accounting principle	-—			-—			-—			(0.06		)
Diluted net loss per share	$	(0.1323	)	$	(0.3445	)	$	(0.2851	)	$	(01.9439	)
Shares used in computing diluted net loss per share	5,~~148~~122,~~809~~564			5,~~134~~166,~~450~~678			5,~~172~~156,~~769~~218			5,~~170~~169,~~578~~292

See Notes to Unaudited Consolidated Condensed Financial Statements.

TAB PRODUCTS CO.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(000'’s omitted)

	Six Months Ended
	Nine Months Ended February 28,
	November 30,
	2002			2001
	2001			2000
OPERATING ACTIVITIES:
Net loss	$	(12,~~457~~613	)	$	(47,~~849~~174	)
Cumulative effect of a change in accounting principle	-—			330
Adjustments to Reconcile Net Loss to Net Cash Provided (Required) by Operating Activities:
Adjustments to Reconcile Net Loss to Net Cash Flows From Operating Activities:
Depreciation and amortization	12,~~450~~118			24,~~198~~294
Deferred income tax (benefit) provision	(~~978~~1,569		)	~~242~~334
Issuance of common stock to 401(k) plan	~~212~~252			~~202~~354
Loss on sale of fixed assets	22			181
Gain on sale of property, plant and equipment, net	(11		)	(1,064		)
Changes in operating assets and liabilities:
Accounts receivable, net	48,~~580~~459			15,~~814~~680
Inventories	~~(208~~93		)	~~648~~1,854
Income tax receivable	4,~~567~~543			(487		)
Prepaid expenses	1,918			(2,361		)
Deferred taxes and other prepaid expenses	3,097			(2,134		)
Deferred pension asset	(~~420~~680		)	-—
Other assets	(12,~~798~~463		)	(~~120~~361		)
Accounts payable	(24,~~577~~295		)	~~131~~(1,124		)
Compensation payable	(~~338~~495		)	(~~746~~462		)
Other accrued liabilities	(12,~~934~~371		)	~~181~~(1,247		)
Net Cash Provided (Required) by Operating Activities	3,039			(2,636		)
Net Cash Flows From Operating Activities	4,065			(1,207		)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net	(~~554~~787		)	(~~668~~715		)
Sale of property	20			-
Sale of property, plant and equipment	24			2,725
Purchases of short-term investments	(~~733~~1,838		)	(25,~~997~~445		)
Sales of short-term investments	12,~~302~~985			36,~~692~~715
Net Cash Provided By Investing Activities	35			27
Net Cash Flows From Investing Activities	384			3,280
FINANCING ACTIVITIES:
Dividends paid	-—			(516		)
Purchase of treasury stock	(~~447~~481		)	-—
Net Cash Required by Financing Activities	(447		)	(516		)
Net Cash Flows From Financing Activities	(481		)	(516		)
Effect of exchange rate changes on cash	(6092		)	49(206		)
Increase (decrease) in cash and cash equivalents	2,567			(3,076		)
Increase in cash and cash equivalents	3,876			1,351
Cash and cash equivalents at beginning of period	5,872			5,724
Cash and Cash Equivalents at End of Period	$	89,~~439~~748		$	27,~~648~~075
Cash paid for:
Interest	$	114		$	617
Income taxes, net of refunds received	$	(4,~~193~~198	)	$	(~~769~~633	)

See Notes to Unaudited Consolidated Condensed Financial Statements.

TAB PRODUCTS CO.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The Company'’s unaudited consolidated ~~condensed~~ condensed financial statements have been prepared in accordance with accounting principles generally accepted ~~accounting~~ ~~principles~~in the United States of America and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) considered necessary to fairly state the Company'’s financial position, results of operations, and cash flows for the periods presented. These unaudited consolidated ~~consolidated~~condensed financial statements should be read in conjunction with the Company'’s audited consolidated financial statements included in the Company'’s Annual ~~Annual~~ Report on Form 10-K for the fiscal year ended May 31, 2001. The results of operations for the three-month and ~~six~~nine-month periods ended ~~November~~February 3028, ~~2001~~2002 are not necessarily indicative of the results to be expected for any subsequent period or for the entire fiscal year ending May 31, 2002. The May 31, 2001 balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted ~~accounting~~in ~~principles~~the United States of America.

Reclassification — Certain prior period amounts have been reclassified to conform to the current period presentation.

2. INVENTORY

Inventories consisted of the following (in thousands):

	November 30, 2001		May 31, 2001
	February 28, 2002		May 31, 2001
Finished goods	$	1,~~422~~416	$	1,443
Work in process	~~359~~361		272
Raw materials	3,~~531~~234		3,389
	$	5,~~312~~011	$	5,104

3. DIVIDENDS

Dividends declared for the ~~six~~nine-month period ended ~~November~~February 3028, ~~2000~~2001 were as follows:

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

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

~~4. Segment Reporting~~6

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 operating decision making group, in deciding how to allocate resources and in assessing performance4. ~~The Chief Executive Officer is the Company's~~ SEGMENT chief operating decision maker. The Company operates and is managed internally by four geographic operating segments. The operating segments consist of the United States, Canada, the Netherlands and Australia. Outside the United States, each operating segment has a 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 directly to the Chief Executive Officer.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 operating decision making group, in deciding how to allocate resources and in assessing performance. The Chief Executive Officer is the Company’s chief operating decision maker. The Company operates and is managed internally by four geographic operating segments. The operating segments consist of the 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 (in thousands):

	Three Months Ended						Six Months Ended
	Three Months Ended February 28,						Nine Months Ended February 28,
	November 30,						November 30,
	2002			2001			2002			2001
	2001			2000			2001			2000
Revenues:
United States	$	2017,~~186~~113		$	2221,~~840~~248		$	4259,~~544~~657		$	4667,~~117~~365
Canada	4,~~712~~494			5,~~171~~532			913,~~095~~589			1015,~~132~~663
Netherlands	~~795~~885			~~965~~1,349			12,~~486~~371			13,~~937~~286
Australia	~~779~~604			~~986~~1,014			12,~~852~~456			23,~~006~~021
Consolidated Total	$	2623,~~472~~096		$	29,~~962~~143		$	5478,~~977~~073		$	6089,~~192~~335
(Loss) income before income taxes:
United States	$	(1,~~098~~677	)	$	(34,~~147~~001	)	$	(24,~~656~~333	)	$	(711,817	)
Canada	~~114~~(99		)	~~121~~107			~~259~~160			~~309~~416
Netherlands	~~(23~~67		)	~~173~~507			~~133~~200			~~265~~772
Australia	(4965		)	~~(52~~32		)	(2287		)	(353		)
Consolidated Total	$	(1,~~056~~774	)	$	(23,~~905~~355	)	$	(24,~~286~~060	)	$	(710,~~278~~632	)
Depreciation and amortization:
United States	$	~~593~~564		$	1,~~024~~903		$	1,~~238~~802		$	23,~~011~~914
Canada	8180			56160			~~165~~245			~~128~~288
Netherlands	1513			2127			2841			3663
Australia	811			116			1930			2329
Consolidated Total	$	~~697~~668		$	12,~~112~~096		$	12,~~450~~118		$	24,~~198~~294

	November 30, 2001		May 31, 2001
	February 28, 2002		May 31, 2001
Property, plant and equipment, net of accumulated depreciation:
United States	$	5,~~962~~599	$	6,814
Canada	~~338~~304		359
Netherlands	~~124~~113		123
Australia	~~230~~220		220
Consolidated Total	$	6,~~654~~236	$	7,516
Total assets:
United States	$	4542,~~476~~563	$	51,273
Canada	6,~~965~~533		7,570
Netherlands	1,~~780~~702		1,680
Australia	1,~~280~~116		1,634
Consolidated Total	$	5551,~~501~~914	$	62,157

Geographic revenues are based on the country from which customers are invoiced. Income before income taxes is net sales less operating expenses, interest or other expenses, but prior to income taxes.

5. COMPREHENSIVE LOSS

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

	Three Months Ended						Six Months Ended
	Three Months Ended February 28,						Nine Months Ended February 28,
	November 30,						November 30,
	2002			2001			2002			2001
	2001			2000			2001			2000
Net loss	$	(1,156	)	$	(2,236	)	$	(2,613	)	$	(7,174	)
Net loss	$	(658	)	$	(1,728	)	$	(1,457	)	$	(4,849	)
Foreign currency translation	(32		)	48			(92		)	(207		)
Foreign currency translation	(116		)	(168		)	(60		)	(255		)
Comprehensive loss	$	(1,188	)	$	(2,188	)	$	(2,705	)	$	(7,381	)
Comprehensive loss	$	(774	)	$	(1,896	)	$	(1,517	)	$	(5,104	)

Accumulated ~~other~~ other comprehensive loss, net of tax, presented onin the accompanying unaudited consolidated condensed balance sheets consists of the following (in thousands):

	November 30, 2001			May 31,2001
	February 28, 2002			May 31,2001
Foreign currency translation	$	(~~850~~882	)	$	(790	)

6. STOCK REPURCHASE PROGRAM

On September 17, 2001, the Company announced that its Board of Directors authorized management to make discretionary repurchases of up to 10% of the Company’s common stock during the ~~next~~following twelve months at market prices. From ~~During~~September ~~the~~17, ~~quarter~~2001 ~~ended~~to ~~November~~February 3028, ~~2001~~2002, the Company ~~Company~~ repurchased ~~104~~112,500 shares of stock at a total cost of $~~447~~481,000 ($4.28 per ~~per~~ share average). Repurchases were made ~~made~~ in open market transactions.

7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

In June 2001, the Financial Accounting Standards ~~Standards~~ Board issued Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets~~. SFAS~~,” ~~No.~~which ~~142~~ addresses the initial ~~recognition~~ recognition and measurement of intangible assets acquired outside of a business ~~combination~~ 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 prior ~~business~~ business combinations. The Company will ~~evaluate~~ 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.

The Company will adopt Statement of Financial ~~Financial~~ Accounting Standards No. 144, (“SFAS No. 144”), “Accounting for the Impairment ~~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). The Company does not expect the adoption of SFAS No. 144 to have a material effect on the consolidated position or results of operations of the Company.

“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board (“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.

8. CHANGES IN ACCOUNTING PRINCIPLE

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 adopted SFAS No. 133 on June 1, 2001. The adoption of SFAS No. 133 did not have a material impact on the Company’s financial position, results of operations or cash flows.

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 to revenue recognition based on interpretations and practices followed by the ~~SEC~~ 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~~principle at the time of implementation in accordance with Accounting Principles Board 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 recognizing revenue from ~~mobile~~the ~~file~~sale ~~storage~~of mobile file storage equipment. Adoption of the change in accounting, in the third quarter of fiscal year 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 change in ~~accounting~~ accounting necessitated the restatement of the first and second quarter ~~financial~~ financial statements and 10Q filings to properly reflect the beginning of the ~~year~~ year recording of the cumulative effect on prior years (to May 31, 2000) of a change in accounting principle. The cumulative effect of the change in accounting principle was a charge of $330,000 in the first quarter of fiscal year 2001.

~~ITEM 2~~9. SUBSEQUENT ~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~EVENT

~~This~~On ~~report~~March 9, ~~including~~ ~~without~~2002, ~~limitation~~President ~~the~~Bush ~~following~~signed ~~section~~into ~~regarding~~law ~~Management’s~~H.R. ~~Discussion~~3090, ~~and~~the ~~Analysis~~“Job ofCreation ~~Financial~~and ~~Condition~~Worker ~~and~~Assistance ~~Results~~Act of ~~Operations, contains~~2002.” The ~~forward-looking~~Act ~~statements~~allows ~~within~~for ~~the~~additional ~~meaning of Section 27A of the~~federal ~~Securities~~depreciation ~~Act~~expense offor ~~1933,~~specific asasset ~~amended,~~acquisitions ~~and~~purchased ~~Section~~by ~~21E of~~ the ~~Securities Exchange~~Company ~~Act~~after ofSeptember ~~1934~~10, ~~as amended~~2001. Additionally, the ~~regarding~~Act increases the ~~Company~~carryback ~~and~~period ~~its~~to ~~business,~~five ~~financial condition,~~years ~~results~~ of ~~operations~~federal ~~and~~net ~~prospects. Words~~operating losses ~~such~~generated asin ~~“expects,”~~tax ~~“may,”~~years ~~“will,”~~ending ~~“should,”~~in ~~“forecasts,”~~2002. ~~“potential,”~~The ~~“continue,”~~Company ~~“anticipates,”~~is ~~“intends,”~~evaluating ~~“plans,”~~whether ~~“projections,” “believes,”~~it ~~“seeks,”~~will ~~“foreseeable,”~~elect ~~“estimates,”~~to ~~and~~carryback ~~similar~~any ~~expressions or~~current ~~variations~~year offederal ~~such~~losses ~~words~~that ~~are~~may ~~intended~~exist toat ~~identify forward~~year-~~looking~~end ~~statements. Additionally,~~and ~~statements concerning future matters such as~~ the ~~development~~amount of ~~new~~the ~~products, enhancements or technologies,~~related ~~possible~~potential ~~changes~~refund inthe ~~legislation~~Company ~~and~~would ~~other~~receive ~~statements~~due ~~regarding~~to ~~matters that are not historical are forward-looking statements~~H. ~~These~~R. ~~statements are only predictions~~3090.

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

This report, including without limitation the following section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the Company and its business, financial condition, results of operations and prospects. Words such as “expects,” “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 Unaudited Consolidated Condensed Financial Statements of the Company.

Capital Resources and Liquidity

At February ~~November 30~~28, ~~2001~~2002, the Company had cash, cash equivalents and short-term investments of $1011.86 million, an increase of $2.07 million from the $8.8 million at May 31, 2001. The increase in cash was is primarily the result of a reduction in accounts receivable of $48.65 million from $23.5 million at May 31, 2001 to $1815.9 0 million at ~~November~~February 3028, ~~2001~~2002 and a $4.5 million tax refund received in July 2001. Such increases to cash were partially offset by the operating loss during the period, the repurchase of common stock during the period, investments in property, plant and equipment and the payment of certain liabilities ~~accrued~~ accrued in the prior year. The Company’s working capital position at ~~November~~February 3028, ~~2001~~2002 was $2321.48 million as ~~compared~~ compared with $26.4 million at May 31, 2001. ~~The~~ The current ratio of 2.57 at ~~November~~February 3028, ~~2001~~2002 was higher than the current ratio of 2.3 reported for May 31, 2001.

Investments in property, plant and equipment, which were primarily focused on company-wide management information systems and production equipment, were $0.68 million for the ~~six~~nine months ended ~~November~~February 3028, 2002. ~~2001.~~ Capital expenditures to support operations for fiscal 2002 are expected to total approximately $01.93 million.

The Company paid no cash dividends in the ~~six~~nine-month period ended ~~November~~February 3028, ~~2001~~2002 and $0.5 million in cash dividends in the ~~six~~nine-month period ended ~~November~~February 3028, ~~2000~~2001. On March 27, 2001, the Company’s Board of Directors discontinued the cash dividend for quarters ending February 28, 2001 and later.

The ~~Company currently has no outstanding debt~~ ~~but~~Company maintains a $5.0 million secured line of credit with a bank. ~~The~~As of February 28, 2002, the Company has not borrowed on the line of credit. The line of credit contains covenants related to cash flow and tangible net worth that the Company must maintain. The Company was in compliance with all of its covenants as of ~~November~~February 3028, ~~2001~~ 2002. The Company believes that its current cash, future cash flows and borrowing capacity will provide sufficient working capital for the next twelve months.

Results of Operations

Revenues for the ~~second~~third quarter of fiscal 2002 were $2623.51 million, ~~down~~a decline of $36.50 million or 1120.67% from the $3029.01 million of revenue reported in the ~~second~~third quarter of fiscal 2001. Revenues for the ~~six~~nine months ended ~~November 30~~February 28, ~~2001~~2002 were $5578.01 million, ~~down~~a decline of $511.23 million or 812.76% from the $6089.2 3 million of revenue reported for the ~~six~~nine months ended ~~November~~February 3028, ~~2000~~2001. The decrease in revenues was primarily attributable to aweak ~~decline~~economic conditions in ~~supplies~~the ~~and~~current ~~service~~fiscal ~~revenue~~year in ~~the U.S combined~~both ~~with~~domestic ~~lower~~and ~~sales from~~ international ~~operations~~markets. ~~The events of September 11, 2001 had a negative impact on revenues.~~

Cost of ~~Revenue~~Revenues, as a percentage of revenues, was 6263.0% for the third quarter of fiscal 2002, an increase of 1.5 percentage points from the ~~second~~61.5% for the third quarter of fiscal ~~2002~~2001. In the third quarter of fiscal 2001, the Company ~~same~~reversed ~~percentage~~certain asaccruals previously recorded related to the Company’s professional services cost of ~~revenue~~revenues in the amount of $1.1 million. The reversal of these accruals was based on a review of the Company’s accrued services liabilities that were determined to ~~reported~~ be greater than was required. This resulted in a decrease of 3.6 percentage points in the ~~second~~third quarter of fiscal 2001 cost of revenues as a percentage of revenues. Prior to this reversal of accruals, the third quarter of fiscal 2001 cost of revenues as a percentage of revenues was 65.1%. For the ~~six~~nine months ended ~~November~~February 3028, ~~2001~~2002, cost of ~~revenue~~revenues as a percentage of revenues was 61.49% as compared to ~~the 63~~62.26% ~~cost of revenue~~ in the first ~~six~~nine months of the prior fiscal year (63.8% before the accrual reversal mentioned above). The decrease in the cost of ~~revenue~~revenues percentage was primarily due to an improved mix of products ~~combined~~ combined with lower manufacturing costs and slightly higher selling prices in ~~fiscal~~ fiscal 2002.

Operating Expenses were $11.1 million or 42.0% of total revenues for the second quarter of fiscal 2002 as compared to $14.2 million or 47.3% of total revenues for the second quarter of fiscal 2001. Expenses in the second quarter of fiscal 2002, as compared to the second quarter of fiscal 2001, are lower primarily due to decreased employee headcount, decreased branch office expenses, reduced depreciation and reduced amortization of goodwill for the Company’s imaging services facility. Such goodwill was written-off in its entirety as of May 31, 2001, and accordingly, there is no comparable amortization in the second quarter of fiscal 2002. The lower expenses were partially offset by a second quarter fiscal 2002 cost of $0.3 million related to the proxy contest that ended in October 2001. There is no comparable expense related to the proxy contest in the second quarter of fiscal 2001.10

~~Operating~~Selling, General and Administrative expenses were $2310.63 million or 4344.06% of total ~~total~~ revenues for the ~~six~~third ~~months~~quarter ~~ended~~of ~~November~~fiscal ~~30,~~2002 ~~2001~~ as compared to $2915.47 million or 48 53.98% of total revenues for the ~~six~~third ~~months~~quarter ~~ended~~of ~~November~~fiscal ~~30, 2000~~2001. Expenses ~~for~~in the ~~six~~third ~~months~~quarter ~~ended~~of fiscal ~~November 30~~2002, ~~2001,~~ as compared to the ~~six~~third ~~months~~quarter ~~ended~~of ~~November~~fiscal 302001, ~~2000,~~were ~~are~~ lower primarily due to adecreased ~~first~~employee ~~quarter~~headcount, ~~fiscal~~decreased ~~2001~~branch ~~one-time~~office ~~charge~~expenses ofdue ~~$1.4~~to lower ~~million~~discretionary ~~due~~expenditures toand the ~~retirement~~closure of ~~the~~certain ~~Company’s~~branch ~~former~~office ~~CEO~~locations, lower ~~decreased~~variable ~~employee~~sales compensation due to lower sales volume, lower bad debt ~~headcount~~expense, ~~decreased~~lower ~~branch~~employee ~~office~~benefit ~~expenses~~costs, ~~reduced~~lower ~~depreciation~~marketing ~~and~~costs, reduced depreciation and reduced amortization of goodwill ~~for~~due to the ~~Company’s imaging services facility. Such goodwill was written~~write-off in its entirety as of May 31, 2001, ~~and~~of ~~accordingly,~~the ~~there~~Company’s isimaging noservices ~~comparable~~facility ~~amortization in the six months ended November 30, 2001~~goodwill. The ~~lower~~third ~~expenses~~quarter ~~for~~of ~~the six months ended~~fiscal ~~November 30,~~ 2001 ~~were~~also ~~partially~~included ~~offset~~a by $01.71 million ofcharge ~~costs~~ related to the ~~proxy~~ ~~contest~~relocation ~~that~~of ~~ended in October 2001.~~ the ~~There~~corporate isheadquarters ~~no comparable expense related~~ to ~~the~~Vernon ~~proxy contest in the six months ended November 30~~Hills, ~~2000~~Illinois.

~~Interest~~Selling, ~~net,~~General and Administrative ~~other~~expenses ~~was~~were an$33.9 ~~expense~~million or 43.4% of total revenues for the nine months ended February 28, 2002 as compared to $745.1 million or 50.5% of total revenues for the nine months ended February 28,~~000~~ in2001. Expenses for the ~~second~~nine ~~quarter~~months ofended ~~fiscal~~February 28, 2002, as compared to the nine months ended February 28, 2001, were lower primarily due to ana ~~expense~~first quarter fiscal 2001 charge of $~~128,000~~1.4 inmillion ~~the~~related ~~second~~to ~~quarter~~the retirement of the Company’s former CEO, a third quarter fiscal 2001 charge of $1. ~~For~~1 million associated with relocation of the ~~six~~corporate office to Vernon Hills, Illinois, decreased employee headcount, decreased branch office expenses ~~months~~ due ~~ended~~to ~~November~~lower 30discretionary expenditures and the closure of certain branch office locations, ~~2001~~lower employee benefit costs, ~~interest~~lower variable sales compensation due to lower sales volume, ~~net~~reduced depreciation and ~~other~~reduced amortization ~~was~~of ~~income~~goodwill due to the write-off in its entirety as of ~~$114~~May 31,~~000~~ 2001, of the Company’s imaging services facility goodwill. The Company has also lowered other discretionary costs such as travel, consulting, training and other selling, general and administrative expenses. The lower expenses for the ~~six~~nine months ended ~~November~~February 3028, ~~2000~~2002 itwere partially ~~was~~offset anby ~~expense~~$0.7 million of costs related to the proxy contest that ~~$15,000~~ended in October 2001. ~~The~~There ~~reduced~~was no comparable expense ~~for~~related to the ~~three~~ ~~and~~proxy ~~six~~contest in the nine months ended February ~~November 30~~28, 2001. As ~~was~~a ~~primarily~~direct ~~due~~result of tothe ~~foreign~~above-mentioned cost reductions, the Company has lowered its operating ~~exchange~~income ~~gains~~break-even ~~partially~~point ~~offset~~on revenues by ~~lower~~approximately ~~interest~~25% ~~rates~~compared ~~earned~~to on the ~~cash~~prior ~~balances~~fiscal year.

~~Income~~Gain ~~Tax~~on Sale ~~Benefit. Net~~of ~~losses~~Property, ~~for~~Plant ~~the~~and ~~second~~Equipment, ~~quarter~~net ofwas ~~fiscal~~$5,000 ~~2002 and~~ for the ~~six~~three months ended ~~November~~February 3028, 2002 ~~2001~~compared ~~have~~to ~~been~~$1.1 ~~reduced~~million byin the ~~amount~~third ofquarter ~~the tax benefit available from the carryforward~~ of ~~net~~fiscal ~~operating losses to future periods~~2001. ~~The~~On ~~effective~~February ~~rate~~16, is2001, ~~37.7% for~~ the ~~second~~Company completed ~~quarter~~the sale of ~~fiscal~~unutilized ~~2002~~property and ~~the~~a ~~effective~~building ~~rate~~for isa ~~40.5%~~gross ~~for~~sales ~~second~~price ~~quarter~~ of $2.9 ~~fiscal 2001~~million. ~~The~~ For ~~six~~the nine months ended ~~November~~February 3028, ~~2001~~2002, ~~effective~~gain ~~tax~~on ~~rate~~sale isof ~~36.3%~~property, plant and equipment, net was $11,000 compared to 37$1.9%1 million for the ~~six~~ nine months ended ~~November~~February 3028, ~~2000~~2001.

~~Net~~Interest, ~~Loss~~net, ~~Per~~and ~~Share~~other ~~for~~was an expense of $29,000 in the ~~second~~third quarter of fiscal 2002 ~~was~~as compared to income of $~~0.13~~28,000 ~~for~~in ~~both~~the ~~basic~~third ~~and~~quarter of fiscal ~~diluted~~2001. The ~~shares~~reduced ~~compared~~income tofor athe ~~net~~three months ~~loss~~ended ~~per~~February ~~share~~28, of2002 ~~$0.34~~was ~~for~~primarily ~~both~~due ~~basic~~to foreign exchange losses and ~~diluted~~lower ~~shares~~interest ~~for~~earned on the ~~second~~Company’s ~~quarter~~cash ~~of fiscal 2001~~balances. ~~Net~~For ~~loss~~the ~~for~~nine ~~both~~months ~~basic~~ended ~~and~~February ~~diluted~~28, ~~shares~~2002, interest, net and other was income of $~~0.28~~79,000 and for the ~~six~~ nine months ended ~~November~~February 3028, 2001 ~~and~~it was income of $013,000.94 The increased income for the ~~six~~nine months ended ~~November~~February 3028, 2002 was primarily due to foreign exchange gains partially offset by lower interest earned on the Company’s cash ~~2000~~ balances.

~~Cumulative~~Income ~~Effect~~Tax Benefit. Net losses for the third quarter of afiscal ~~Change~~2002 and infor ~~Accounting~~the ~~Principle.~~nine ~~Adoption~~months ofended aFebruary 28, 2002 have been reduced by the amount of ~~change~~the intax ~~accounting~~benefit ~~for~~available from the ~~recognition~~carryforward of ~~revenue~~net ~~related~~operating losses to future ~~mobile~~periods. The ~~filing~~effective tax rate ~~systems~~was ~~necessitated~~34.8% afor ~~cumulative~~the ~~effect~~third ~~adjustment~~quarter of ~~$0.3~~fiscal ~~million~~2002 asand of30.7% for the third quarter of fiscal 2001. The effective tax rate ~~beginning~~ was of35.6% for the ~~first~~nine ~~quarter~~months ofended ~~fiscal~~February ~~year~~28, 2002 and February 28, 2001.

~~Recently~~Net ~~Issued~~Loss ~~Accounting~~Per ~~Standards~~Share for the third quarter of fiscal 2002 was $0.23 for both basic and diluted shares compared to a net loss per share of $0.45 for both basic and diluted shares for the third quarter of fiscal 2001. Net loss for both basic and diluted shares was $0.51 for the nine months ended February 28, 2002 and $1.39 for the nine months ended February 28, 2001.

InCumulative ~~June~~Effect ~~2001,~~of ~~the~~a ~~Financial~~Change ~~Accounting~~in ~~Standards Board issued Statement of Financial~~ Accounting ~~Standards No~~Principle. ~~141~~Adoption ~~(“SFAS No. 141”), Business Combinations, which eliminates the pooling~~ of ~~interests~~a ~~method~~change ofin accounting for ~~all business combinations initiated after June 30, 2001 and addresses~~ the ~~initial~~ recognition ~~and measurement~~ of ~~goodwill~~revenue related ~~and~~to ~~other~~mobile ~~intangible~~filing ~~assets~~systems ~~acquired~~resulted in a ~~business~~charge ~~combination~~of $0. ~~The~~3 ~~Company~~million ~~will~~as ~~adopt~~of ~~SFAS No. 141 for~~the ~~business~~beginning ~~combinations~~of ~~initiated~~the ~~after~~first ~~June~~quarter ~~30,~~of fiscal year 2001.

~~In June~~Recently ~~2001,~~Issued ~~the Financial~~ Accounting Standards Board issued Statement of Financial Accounting Standard No. 142 (“SFAS No. 142”), Goodwill and Other Intangible Assets. 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 on June 1, 2002. Upon adoption of SFAS No. 142, the Company will stop the amortization of goodwill that resulted from prior 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.

~~The~~In ~~Company~~June ~~will~~2001, ~~adopt~~the ~~Statement of~~Financial ~~Financial~~ Accounting Standards ~~No.~~Board ~~144,~~issued ~~(“SFAS~~Statement ~~No.~~of ~~144”),~~Financial Accounting ~~for the~~Standards ~~Impairment or Disposal of Long-Lived Assets, effective June 1, 2002. SFAS~~ No. ~~144~~141 ~~addresses financial accounting and reporting for the impairment or disposal of long-lived assets.~~ (“SFAS No. ~~144~~141”), ~~supersedes~~“Business ~~SFAS No. 121~~Combinations, ~~Accounting~~” ~~for~~which eliminates the ~~Impairment of Long-Lived Assets and for Long-Lived Assets to~~pooling ~~Be Disposed Of, and the accounting and reporting provisions~~ of ~~APB~~interests ~~Opinion~~method ~~No. 30, Reporting the Results~~ of ~~Operations~~accounting –for ~~Reporting~~all ~~the~~business ~~Effects~~combinations ofinitiated ~~Disposal of~~after aJune ~~Segment of a Business~~30, ~~and~~2001 ~~Extraordinary, Unusual~~ and ~~Infrequently~~addresses ~~Occurring Events and Transactions, for~~ the ~~disposal~~initial ofrecognition aand ~~segment~~measurement of ~~a business (as previously~~goodwill ~~defined~~and ~~in that Opinion). The Company 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.~~

~~Business Environment And Risk Factors~~11

~~The~~other ~~Company's future~~intangible ~~operating~~assets ~~results~~acquired ~~may be affected by various trends and factors, which we must successfully manage~~ in ~~order to achieve favorable operating results. In~~a ~~addition,~~business ~~there are trends and factors beyond our control, which affect our operations~~combination. ~~Such~~The ~~trends~~Company ~~and factors~~will ~~include,~~adopt ~~but~~SFAS ~~are~~No. ~~not~~141 ~~limited to, possible adverse changes in general economic conditions or conditions in the specific markets~~ for ~~our~~business ~~products,~~combinations ~~governmental regulation,~~initiated ~~fluctuations~~after inJune ~~foreign exchange rates~~30, ~~force majeure, and other factors, including, but not limited to, those listed below~~2001.

~~Failure~~In June 2001, the Financial Accounting Standards Board issued Statement of to Financial ~~manage~~Accounting ~~expenses~~Standard inNo. ~~alignment~~142 ~~with~~(“SFAS ~~revenues~~No. ~~could~~142”), ~~adversely~~“Goodwill ~~impact~~and ~~our~~Other Intangible Assets,” which addresses the initial recognition and measurement of ~~results~~ intangible assets acquired outside of ~~operations~~a business combination and ~~financial~~the ~~condition. We~~accounting ~~incurred~~for ~~significant~~goodwill ~~one-time~~and ~~costs~~other inintangible ~~fiscal~~assets ~~2001~~subsequent to ~~restructure~~their ~~our~~acquisition. SFAS ~~expense~~No. 142 provides that intangible assets ~~levels~~with infinite ~~line~~useful ~~with~~lives ~~expected~~be ~~revenues.~~ amortized and that goodwill and intangible assets Ifwith ~~this~~indefinite ~~restructuring~~lives ~~does~~will not ~~prove~~be toamortized, bebut ~~sufficient~~will orrather ifbe wetested ~~fail~~at toleast ~~take~~annually ~~additional~~for ~~actions~~impairment. The ~~that~~Company will ~~may~~adopt ~~become~~SFAS ~~necessary~~No. to142 ~~align~~on ~~future~~June ~~expenses~~1, ~~with~~2002. ~~future~~Upon ~~revenue~~adoption ~~levels~~of SFAS No. 142, ~~our~~the ~~results~~Company will stop the amortization of goodwill ~~operations~~that resulted from prior business combinations. The Company will evaluate goodwill under the SFAS No. 142 transitional impairment test and ~~financial~~has ~~condition~~not ~~could~~yet determined whether or not there is an impairment loss. Any transitional impairment loss will be ~~adversely~~recognized ~~impacted~~as a change in accounting principle.

AnThe ~~accelerated~~Company ~~move~~will toadopt ~~digital~~Statement ~~technology~~of byFinancial Accounting ~~our~~Standards ~~customers~~No. 144, (“SFAS No. 144”), “Accounting for the Impairment ~~could~~or ~~weaken~~Disposal ~~demand~~of ~~for~~Long-Lived ~~our~~Assets,” ~~products~~effective ~~and~~June ~~services~~1, 2002. ~~Although~~SFAS No. 144 addresses financial accounting and reporting for the ~~use~~impairment or disposal of ~~paper~~long-lived byassets. SFAS ~~business~~No. ~~has continued~~144 tosupersedes ~~increase~~SFAS No. 121, “Accounting for the ~~use~~Impairment of ~~digital~~Long-Lived ~~records~~Assets byand ~~large~~for ~~document~~Long-Lived ~~intensive~~Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting ~~industries~~ Principles ~~may~~Board ~~accelerate~~(“APB”) Opinion No. ~~This~~ ~~could~~30, “Reporting the Results of Operations — ~~weaken~~Reporting the ~~demand~~Effects ~~for~~of ~~our~~Disposal ~~paper-based~~of ~~supplies~~a ~~and~~Segment ~~storage~~of ~~products. If~~a weBusiness, ~~fail~~and Extraordinary, toUnusual ~~respond~~and ~~with~~Infrequently ~~new~~Occurring ~~digital~~Events and Transactions,” for ~~products~~the ~~and~~disposal ~~services~~of toa ~~such~~segment of a ~~potential~~business ~~market~~(as ~~change,~~previously ~~our~~defined ~~revenues,~~in ~~results~~that Opinion). Although the Company has not of completed ~~operations~~its assessment, it does not expect the adoption of SFAS No. 144 to have a material effect on the consolidated financial ~~condition~~position ~~and~~or ~~prospects~~results ~~could~~of operations beof ~~adversely~~the ~~affected~~Company.

~~The~~Business ~~impact~~Environment ofAnd ~~the~~Risk 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 will have 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.Factors

We The ~~may~~Company’s ~~not~~future ~~be able to achieve~~operating ~~higher~~results ~~market~~may ~~penetration~~be ~~for~~affected ~~sales~~by ofvarious ~~large~~trends ~~document~~and ~~management~~factors, ~~solution~~which we must ~~projects. Although~~successfully ~~from~~manage ~~fiscal~~in ~~2001~~order ~~onward~~to weachieve ~~have~~favorable ~~focused~~operating ~~our~~results. ~~selling~~In ~~efforts~~addition, onthere ~~obtaining~~are atrends ~~balanced~~and ~~mix~~factors ofbeyond ~~orders~~our ofcontrol, ~~varying~~which ~~sizes~~affect ~~and types, large~~our ~~projects~~operations. Such ~~may~~trends beand ~~important~~factors include, tobut ~~achieving~~are ~~revenue~~not ~~growth. While~~limited ~~the~~to, ~~Company~~possible ~~does~~adverse ~~not~~changes ~~know~~in ofgeneral ~~any large~~economic ~~competitor~~conditions ~~with~~or ~~the~~conditions ~~capability~~in tothe ~~handle~~specific ~~these~~markets ~~large~~for ~~projects~~our products, ~~if we fail to~~governmental ~~achieve~~regulation, ~~significant~~fluctuations ~~market~~in ~~penetration~~foreign ~~for~~exchange ~~such projects~~rates, ~~revenue~~force ~~growth~~majeure, ~~may~~and beother ~~limited~~factors, ~~and~~including, ~~our~~but ~~results~~not oflimited ~~operations~~to, ~~may~~those belisted ~~adversely impacted~~below.

If Failure to wemanage ~~cannot~~expenses ~~attract~~in oralignment ~~retain~~with ~~key~~revenues ~~qualified~~could ~~personnel,~~adversely ~~our~~impact ~~business,~~our results of operations and financial condition ~~may be adversely impacted~~. We ~~Our~~incurred ~~future~~significant ~~performance depends~~costs in ~~significant~~fiscal ~~part~~2001 ~~upon~~to ~~attracting~~restructure ~~and~~our ~~retaining~~expense ~~key~~levels ~~management,~~in ~~sales,~~line ~~manufacturing,~~with ~~marketing~~expected ~~and~~revenues. If ~~technical~~this restructuring ~~support~~does ~~personnel. The~~not ~~inability~~prove to ~~attract,~~be ~~assimilate~~sufficient or ~~retain~~ ~~highly~~if ~~qualified~~we ~~personnel~~fail into ~~the~~take ~~future~~additional actions onthat amay ~~timely~~become ~~basis~~necessary ~~could~~to ~~have~~align ~~a material~~future ~~adverse~~expenses ~~effect~~with onfuture ~~our business~~revenue levels, our results of operations and financial condition could be adversely ~~condition~~impacted.

~~Our~~An ~~operating~~accelerated ~~results~~move ~~may fluctuate from period~~ to ~~period. Factors~~digital ~~affecting~~technology by our ~~operating results and gross margins include the~~customers ~~volume~~could ofweaken ~~product sales, competitive pricing pressures, the ability to match supply with~~ demand, ~~changes~~for ~~in product and customer mix, market acceptance of new or enhanced versions of~~ our products and services,. Although ~~changes in~~ the ~~channels through~~use ~~which~~of ~~our~~paper ~~products~~by ~~and~~business ~~services~~has continued ~~are~~to ~~distributed~~increase, ~~changes~~the inuse ~~our product mix, timing~~ of ~~new~~digital ~~product~~records ~~announcements and introductions~~ by uslarge ~~and~~document ~~our~~intensive ~~competitors,~~industries ~~fluctuations~~may inaccelerate. This ~~product~~could weaken ~~costs,~~the ~~variations~~demand infor ~~manufacturing~~our ~~cycle times,~~paper-based ~~fluctuations~~supplies inand ~~manufacturing~~storage ~~utilization,~~products. If ~~our~~we ~~ability~~fail to ~~achieve manufacturing~~respond ~~volumes~~ with ~~our~~ new ~~and existing products, increased research~~digital products and ~~development~~services ~~expenses,~~to ~~exchange~~such ~~rate~~a ~~fluctuations,~~potential amarket change, in our ~~effective~~revenues, results ~~tax rate and changes in general economic conditions. All~~ of ~~these~~operations, ~~factors~~financial ~~are~~condition ~~difficult to forecast~~ and ~~these~~prospects orcould ~~other factors~~be ~~can~~adversely ~~materially affect our quarterly or annual operating results~~affected.

~~Our~~The ~~liquidity~~impact ~~could~~of bethe ~~adversely~~recent ~~impacted~~terrorist ~~by unexpected~~attacks ~~events.~~ in the United ~~Although~~States wemay ~~believe that we~~ have ~~sufficient~~both ~~cash~~short-term ~~on hand~~ and ~~cash~~long-term ~~from operations~~adverse toeffects ~~satisfy~~on our ~~working capital needs for the next twelve months~~revenues, ~~any~~ ~~significant~~results ~~unexpected~~of ~~cash~~operations, ~~requirements~~financial ~~could~~condition ~~adversely~~and ~~impact our liquidity~~prospects. ~~In those circumstances, we~~ While ~~would~~it beis ~~required~~likely tothat ~~seek~~the ~~third~~terrorist ~~party~~attacks ~~financing~~of ~~and~~September we11, ~~cannot~~2001 behave ~~certain~~had ~~that~~an ~~financing~~immediate ~~will~~impact ~~be available~~ on ~~acceptable terms or at all. Factors affecting~~ our ~~cash~~business ~~flows~~as ~~include~~a ~~net income~~result ~~or losses, the timely collection~~ of ~~accounts~~business ~~receivable~~disruption ~~from customers~~generally, ~~the~~including ~~willingness~~transportation ~~of suppliers to extend normal credit terms~~disruption, ~~the~~deferral ~~purchase and sale~~ of ~~assets,~~customer ~~the~~purchasing ~~willingness of financial institutions to lend to us, and~~decisions ~~the~~and ~~payment~~supply ofchain ~~dividends. Although our projections of these factors indicate that our operational cash flows~~disruption, ~~together with our existing cash and cash equivalent balances and our borrowing capacity will adequately finance anticipated operations and capital expenditures for~~ the ~~next~~ ~~twelve~~long-term ~~months,~~effects ~~investors~~ are ~~cautioned~~not ~~that~~known ~~such~~at ~~projections~~this ~~inherently involve risks and uncertainties~~time.

~~Failure~~We tomay ~~compete~~not ~~effectively~~be ~~could~~able ~~have~~to aachieve ~~material~~higher ~~adverse~~market ~~impact~~penetration onfor ~~our~~sales ~~results~~ of ~~operations~~large document management solution projects. ~~Competition~~Although from ~~may~~fiscal ~~increase~~2001 inonward ~~the~~we ~~future~~have ~~from~~focused our selling efforts on obtaining a ~~existing~~balanced ~~competitors~~mix ~~and/or~~of ~~from~~orders ~~other~~of ~~companies~~varying ~~offering~~sizes ~~products~~ and ~~services~~types, large projects may be important to achieving revenue growth. ~~that~~ While ~~may~~the beCompany ~~less~~does ~~costly~~not orknow ~~provide~~of ~~additional~~a ~~features. Unless~~single welarge ~~respond~~competitor ~~effectively,~~with ~~such~~the capability to handle these large projects, if we fail to achieve significant ~~competition~~ market ~~could~~penetration ~~result~~for insuch ~~lost~~projects, ~~sales~~revenue ~~and~~growth ~~lower~~may ~~operating~~be limited and our results of operations may be adversely impacted.

~~Failure~~If ~~to obtain~~we ~~sufficient~~cannot ~~quantities~~attract ofor ~~critical~~retain ~~components~~key qualified ~~could~~personnel, ~~adversely impact~~ our business, ~~financial condition and~~ results of operations~~. We~~ ~~purchase~~and ~~several critical components from~~financial ~~single~~condition ormay ~~sole~~be ~~source~~adversely ~~vendors for which alternative sources are not currently in place~~impacted. WeOur dofuture ~~not maintain long-term~~performance ~~supply~~depends ~~agreements~~in ~~with~~significant ~~any~~part ofupon ~~these~~attracting ~~vendors. Development~~and ofretaining ~~alternative~~key ~~supply sources would require a significant~~management, ~~amount~~sales, ofmanufacturing, ~~time~~marketing toand ~~qualify~~technical insupport ~~the case of certain of our components~~personnel. The inability to ~~develop~~attract, ~~alternative sources~~assimilate ~~for these single~~ or ~~sole source components or to obtain sufficient~~retain ~~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.12

~~Sales~~highly ~~to the U.S. Government may~~qualified ~~result~~personnel 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~~future ~~effect~~on of a ~~government~~timely ~~initiative~~basis ~~to streamline processes~~ could ~~eventually~~ have a ~~negative~~material ~~impact~~adverse effect on our business, ~~financial condition and~~ results of operations and financial condition.

~~Unfavorable intellectual property~~Our ~~developments~~operating ~~could adversely impact our business and~~ results ofmay ~~operations. We~~fluctuate ~~rely~~from onperiod ato ~~combination of~~period. ~~patents,~~Factors ~~trademarks,~~affecting ~~copyright~~our operating results and ~~trade~~gross ~~secret~~margins ~~laws,~~include ~~confidentiality~~the ~~procedures~~volume ~~and~~of ~~licensing~~product ~~arrangements~~sales, tocompetitive ~~protect~~pricing ~~our~~pressures, ~~intellectual~~the ~~property~~ability to match ~~rights. We~~supply ~~have~~with ~~been~~demand, ~~notified~~changes in ~~the past~~product and ~~may~~customer bemix, ~~notified~~changes in the channels ~~future~~through ofwhich ~~claims~~our ~~that~~products ~~they~~and ~~may~~services beare ~~infringing upon~~distributed, ~~patents~~timing orof ~~other~~new product ~~intellectual~~announcements ~~property~~and ~~rights~~introductions ~~owned~~ by ~~third~~us ~~parties. There~~and ~~can~~our becompetitors, ~~no assurance that in the future~~fluctuations ~~any~~in ~~patents~~product ~~held~~costs, byvariations usin ~~will~~manufacturing ~~not~~cycle ~~be invalidated~~times, ~~that~~fluctuations ~~patents will be issued for~~in ~~any~~manufacturing ofutilization, our ~~pending~~ability ~~applications~~to orachieve ~~that~~manufacturing ~~any~~volumes ~~claims allowed from existing or~~with ~~pending~~our ~~patents~~new ~~will~~and beexisting ofproducts, ~~sufficient~~exchange ~~scope~~rate orfluctuations, ~~strength~~a orchange ~~be issued~~ in ~~the primary~~our ~~countries~~effective ~~where~~tax ~~our~~rate ~~products~~and ~~can~~changes bein ~~sold~~general toeconomic ~~provide~~conditions. All ~~meaningful~~of ~~protection~~these ~~or any~~factors ~~commercial~~are ~~advantage~~difficult to ~~us.~~ ~~Additionally,~~forecast ~~our~~and ~~competitors~~these ~~may~~or beother ~~able~~factors tocan ~~design~~materially ~~around~~affect our ~~patents~~quarterly or annual operating results.

~~A significant decrease in international sales could~~Our ~~adversely~~liquidity ~~impact~~could ~~our~~be ~~business,~~adversely ~~financial~~impacted ~~condition~~by ~~and~~unexpected ~~results of operations~~events. ~~International sales~~Although ~~accounted~~we ~~for~~believe ~~approximately~~that ~~25%~~we ~~and~~have ~~22%,~~sufficient ~~respectively~~cash ~~of our total~~on ~~revenues~~hand ~~in fiscal 2001~~ and ~~2000. Fluctuations~~expected incash ~~currencies~~from ~~negatively~~operations ~~impacted~~to ussatisfy inour ~~fiscal~~working ~~2001~~capital ~~and~~needs for ~~could~~the ~~adversely~~next ~~affect~~twelve ~~our business~~months, ~~financial~~any ~~condition~~significant ~~and~~unexpected ~~results~~cash ofrequirements could ~~operations~~adversely inimpact ~~the~~our ~~future~~liquidity. ~~Because sales~~In ofthose ~~our~~circumstances, ~~products~~we ~~have~~would ~~been~~be ~~denominated~~required to ~~date~~seek ~~primarily~~third inparty ~~United~~financing ~~States~~and we ~~dollars,~~cannot ~~increases~~be incertain ~~the~~that ~~value~~financing ofwill ~~the~~be ~~United~~available ~~States~~on ~~dollar~~acceptable ~~could~~terms ~~increase~~or ~~the~~at ~~price~~all. Factors ofaffecting our ~~products~~cash ~~so that they become relatively more expensive to~~flows ~~customers~~include innet ~~the~~income ~~local~~or ~~currency of a particular country~~losses, ~~leading~~the totimely acollection ~~reduction in~~of ~~sales~~accounts ~~and~~receivable ~~profitability in that country.~~ from Wecustomers, ~~are subject to~~ the ~~risks~~willingness of ~~conducting~~suppliers ~~business~~to ~~internationally, including~~extend ~~foreign~~normal ~~government~~credit ~~regulation and general geopolitical risks such as political and economic instability~~terms, ~~potential~~the ~~hostilities and changes in~~purchase ~~diplomatic~~ and ~~trade~~sale ~~relationships. Manufacturing and sales~~ of ~~our products may also be materially adversely affected by factors such as unexpected changes in~~assets, orthe ~~imposition~~willingness of, ~~regulatory requirements,~~financial ~~tariffs,~~institutions ~~import~~to ~~and~~lend ~~export~~to ~~restrictions and other barriers and restrictions~~us, ~~longer payment cycles, greater difficulty in accounts receivable~~ ~~collection,~~and ~~potentially adverse tax consequences,~~ the ~~burdens~~payment of ~~complying with~~dividends. Although aour ~~variety~~projections of ~~foreign~~these ~~laws and other~~ factors ~~beyond~~indicate that our ~~control. In~~operational ~~addition,~~cash ~~the laws of certain foreign~~flows, ~~countries~~together inwith ~~which~~ our ~~products~~existing ~~are~~cash orand ~~may~~cash beequivalent ~~developed,~~balances ~~manufactured~~and orour ~~sold,~~borrowing ~~may~~capacity ~~not~~will ~~protect~~adequately ~~our~~finance ~~intellectual~~anticipated ~~property~~operations ~~rights~~and ~~to the same extent as do the~~capital ~~laws~~expenditures offor the ~~United~~next ~~States~~twelve ~~and~~months, ~~thus~~investors ~~make~~are ~~piracy~~cautioned ofthat ~~our products a more likely~~such ~~possibility. There~~projections ~~can~~inherently beinvolve norisks ~~assurance that these factors will not have a material adverse effect on our business, financial condition~~ and ~~results of operations~~uncertainties.

~~ITEM~~Failure to 3compete effectively could have a material adverse impact on our results of operations. ~~QUANTITATIVE~~ Competition may increase in the future from existing competitors, new competitors and/or from other companies offering products and services that ~~AND~~ may ~~QUALITATIVE~~be ~~DISCLOSURE~~less ~~ABOUT~~costly ~~MARKET~~or ~~RISKS~~provide additional features. Unless we respond effectively, such competition could result in lost sales and lower operating results.

~~The~~Failure to obtain sufficient quantities of critical components could adversely impact our business, ~~Company~~ financial iscondition ~~exposed~~and toresults ~~market~~of ~~risk~~operations. We ~~related~~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 ~~fluctuations~~qualify in ~~interest~~the ~~rates~~case ~~and~~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 ~~foreign~~delays ~~currency~~or ~~exchange~~reductions ~~rates~~in product shipments, which could adversely affect our business, financial condition and results of operations.

~~The Company’s~~Failure ~~exposure~~ to ~~market~~achieve ~~risk due to fluctuations in interest rates relates~~planned ~~primarily~~manufacturing tovolumes ~~its~~could ~~short-term~~adversely ~~investment~~impact ~~portfolio~~our business, ~~which~~financial ~~consists of corporate~~condition ~~debt securities, which are classified as available-for-sale~~ and ~~were~~results ~~reported at an aggregate fair value~~ of $2operations.4 There ~~million~~can asbe ofno ~~November~~assurance ~~30,~~that ~~2001. These~~our ~~available-for-sale securities are~~manufacturing ~~subject~~facilities ~~to interest rate risk inasmuch as their fair value~~ will ~~fall,~~achieve ifor ~~market interest~~maintain ~~rates~~acceptable ~~increase. If~~manufacturing ~~market interest~~volumes ~~rates~~in ~~were to increase immediately and uniformly by 10% from~~ the ~~levels prevailing at November 30, 2001, the fair value of the portfolio would not decline by a material amount~~future. The ~~Company~~ ~~does~~inability ~~not use derivative financial instruments~~ to ~~mitigate the risks~~achieve ~~inherent~~planned involumes ~~these~~from ~~securities. However, the~~our ~~Company~~manufacturing ~~does~~facilities ~~attempt~~could tohave ~~reduce~~an ~~such~~adverse ~~risks by typically limiting the~~effect ~~maturity~~on ~~date~~our ~~of such securities to no more than nine months~~business, ~~placing~~financial ~~its investments~~condition ~~with high credit quality issuers~~ and ~~limiting~~results ~~the amount~~ of ~~credit exposure with any one issuer~~operations. ~~In addition,~~Any ~~the~~problems ~~Company~~experienced ~~believes~~by ~~that~~us itin ~~currently~~our current ~~has~~or ~~the~~future ~~ability~~transitions to ~~hold~~new ~~these investments~~processes ~~until maturity,~~ and ~~therefore,~~products ~~believes~~or ~~that reductions in~~ the ~~value~~consolidation of ~~such~~manufacturing ~~securities~~operations ~~attributable~~could tohave ~~short-term~~a ~~fluctuations~~material inadverse ~~interest~~effect ~~rates~~on ~~would~~our ~~not~~business, ~~materially affect the~~ financial ~~position,~~condition and results of operations ~~or cash flows of the Company~~.

~~The Company’s~~Sales ~~exposure~~ to ~~market risk due to fluctuations in foreign currency exchange rates relates primarily to~~ the intercompany balance with its Netherlands subsidiary. 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 Netherlands Guilders or other currencies. Based on the intercompany balance of $27,000 at November 30, 2001, a hypothetical 10% adverse change in Netherlands Guilders against U.S. ~~dollars~~Government ~~would not result in a material foreign exchange loss. Consequently, the Company does not expect~~may ~~that~~result ~~reductions~~ in ~~the~~fluctuations ~~value~~due ofto ~~such~~their ~~intercompany~~budget ~~balances~~constraints orand ofnew other accounts denominated in foreign currencies resulting from even a sudden or significant fluctuation in foreign exchange rates, would have a material impact on the Company’s financial position, results of operations or cash flowsinitiatives.

~~In January~~Government ~~1999,~~revenues ~~certain~~primarily ~~member~~expose ~~countries~~us ofto ~~the~~risks ~~European~~from ~~Union~~reductions ~~established~~in ~~permanent,~~budget ~~fixed~~allocations ~~conversion~~to ~~rates~~support ~~between~~regulation ~~their existing currencies~~ and ~~the European~~administrative ~~Union's common currency (the Euro)~~offices. The ~~transition~~government ~~period~~may ~~for conversion~~periodically ~~to the Euro was January 1, 1999 through January 1, 2002, at which~~undertake ~~time~~initiatives ~~all~~that ~~legal~~create ~~tender~~opportunities ~~within the participating member countries converted~~ to ~~the~~ ~~Euro. The~~help ~~timing~~them ofstreamline ~~phasing out all~~workflow ~~uses~~processes, ofreduce ~~existing~~paperwork ~~currencies will comply with the legal requirements~~ and ~~also~~increase ~~be scheduled~~customer ~~to facilitate optimal coordination with the plans of our vendors~~service, ~~distributors~~ ~~and~~which ~~customers.~~may ~~Work related to the introduction of the Euro and~~provide ~~the~~short-term ~~phasing~~opportunities out of the other currencies includes converting information technology systems; recalculating currency risk; and taking action, if needed, regarding continuity of contracts; and modifying our processes for ~~preparing tax, accounting, payroll and customer records~~us. ~~Management~~However, ~~believes~~ the ~~introduction~~long-term effect of ~~the~~a ~~Euro~~government ~~and~~initiative ~~the~~to ~~phasing out of~~streamline ~~the~~processes ~~other~~could ~~currencies~~eventually ~~will not~~ have a ~~material~~negative impact on ~~the~~our ~~Company's~~business, financial condition, and results of operations~~, or cash flows~~.

~~Notwithstanding~~Unfavorable ~~the~~intellectual property ~~foregoing~~developments ~~analysis~~could adversely impact our business and results of ~~the~~operations. We ~~direct~~rely ~~effects~~on a combination of ~~interest~~patents, ~~rate~~trademarks, copyright and ~~foreign~~trade ~~currency~~secret laws, confidentiality procedures and licensing ~~exchange~~arrangements ~~rate~~to ~~fluctuations~~protect onour ~~the~~intellectual ~~value~~property ofrights. We ~~certain~~have ofbeen notified in the ~~Company’s~~past ~~investments~~and may be ~~and~~notified ~~accounts,~~in the ~~indirect~~future ~~effects~~ of ~~such~~claims ~~fluctuations~~that ~~could~~they ~~have~~may abe ~~material adverse~~infringing ~~effect~~upon onpatents ~~the~~or other ~~Company’s~~intellectual ~~business,~~property ~~financial~~rights ~~condition~~owned ~~and~~by ~~results~~third ~~of operations~~parties. ~~For~~There ~~example,~~can ~~international~~be ~~demand~~no ~~for~~assurance that in the future ~~Company’s~~any ~~products~~patents ~~could~~held ~~be affected~~ by ~~foreign~~us ~~currency~~will ~~exchange~~not ~~rates. In~~be ~~addition~~invalidated, ~~interest~~that ~~rate~~patents ~~fluctuations~~will ~~may~~be issued for ~~affect~~any ~~the~~of ~~buying~~our ~~patterns~~pending ofapplications ~~the~~or ~~Company’s~~that ~~customers. Furthermore,~~any ~~interest~~claims ~~rate~~allowed ~~and~~from ~~currency~~existing or ~~exchange~~pending ~~rate~~patents ~~fluctuations~~will ~~have~~be ~~broad~~of ~~influence~~sufficient onscope ~~the~~or ~~general~~strength ~~condition~~or ofbe issued in the ~~U.S.,~~primary ~~foreign~~countries ~~and~~where ~~global~~our ~~economies,~~products ~~which~~can ~~could~~be ~~materially~~sold ~~and~~to ~~adversely~~provide ~~affect~~meaningful ~~the~~protection ~~Company’s~~or ~~financial~~any ~~condition,~~commercial ~~results~~advantage ofto ~~operations~~us. Additionally, ~~and~~our ~~cash~~competitors ~~flows~~may be able to design around our patents.

~~PART II: OTHER INFORMATION~~13

~~ITEM~~A 4negative impact to our international operations could adversely impact our business, financial condition and results of operations. ~~SUBMISSION~~ For the nine months ended February 28, 2002 and 2001, international sales accounted OF for ~~MATTERS~~approximately TO24% Aand ~~VOTE~~25%, OFrespectively, ~~SECURITY~~of ~~HOLDERS~~our consolidated total revenues. Fluctuations in currencies negatively impacted us in fiscal 2001 and could adversely affect our business, financial condition and results of operations in the future. 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 and results of operations.

~~(a) The Company~~ITEM ~~held~~3. QUANTITATIVE ~~its~~AND ~~Annual~~QUALITATIVE ~~Meeting~~DISCLOSURE ofABOUT ~~Stockholders~~MARKET ~~on October 16, 2001.~~RISKS

~~(b)~~ The ~~following~~Company ~~persons,~~is ~~which~~exposed ~~constitute~~to ~~all~~market ofrisk ~~managements’~~related ~~nominees~~to ~~for~~fluctuations ~~election as director as listed~~ in ~~the~~interest ~~proxy~~rates ~~statement, were elected: Gary W. Ampulski, Kathryn S. Hanson, Jeffrey~~and A.in ~~Heimbuck,~~foreign ~~Warren~~currency G.exchange ~~Lichtenstein, Jerry K~~rates. ~~Myers, Hans A. Wolf and David W. Wright.~~

~~(c) Stockholders~~The ~~were~~Company’s ~~asked~~exposure to ~~vote~~market onrisk ~~three~~due ~~matters~~to atfluctuations ~~the~~in ~~Annual~~interest ~~Meeting~~rates asrelates primarily ~~follows:~~to ~~(1)~~its short-term investment portfolio, which consists of corporate debt securities, which are classified as available-for-sale and were reported ~~election~~ at an aggregate fair value of ~~seven~~$1.8 ~~persons~~million as of February 28, 2002. These available-for-sale securities are subject to ~~serve~~interest rate risk inasmuch as ~~directors,~~their ~~(2)~~fair ~~approval~~value ofwill ~~the~~fall, ~~adoption~~if market interest rates increase. If market of interest rates were to increase immediately and uniformly by 10% from the levels ~~Company’s~~prevailing ~~2001~~at ~~Stock~~February ~~Option~~28, ~~Plan~~2002, ~~and~~the ~~(3)~~fair ~~ratification~~value of the portfolio would not decline by a material amount. The ~~appointment~~ Company ofdoes ~~Deloitte~~not &use ~~Touche~~derivative ~~LLP~~financial asinstruments to mitigate the ~~independent~~risks inherent ~~accountants~~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 ~~for~~believes that it currently has the ~~fiscal~~ability ~~year~~to ~~ending~~hold ~~May~~these investments 31until maturity, ~~2002. The~~and ~~election~~therefore, believes that reductions in the value of ~~directors~~such ~~was~~securities ~~contested~~attributable byto ~~Thaddeus~~short-term S.fluctuations in interest rates would not materially affect the financial position, results of operations ~~Jaroszewicz~~ or ~~and~~cash ~~five~~flows ~~other~~of ~~nominees~~the Company.

The Company’s exposure to market risk due to fluctuations in foreign currency exchange rates relates ~~votes~~ primarily ~~for~~to ~~each~~the intercompany receivable balance with its Netherlands subsidiary. Such intercompany receivable balance at February 28, 2002 was zero; therefore, a hypothetical 10% adverse change in the Euro against the 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 intercompany receivable balances or of other accounts denominated in foreign currencies resulting from even a sudden or significant fluctuation in foreign exchange rates, would have a material impact on the ~~three~~Company’s ~~matters~~financial position, ~~were~~results asof ~~follows:~~operations or cash flows.

~~Election~~In January 1999, certain member countries of the European Union established permanent, fixed conversion rates between their existing currencies and the European Union’s common currency (the Euro). The transition period for conversion to the Euro was January 1, 1999 through January 1, 2002, at which time all legal tender within the participating member countries converted to the Euro. The timing of ~~Directors~~phasing out all uses of existing currencies will comply with the legal requirements and also be scheduled to facilitate optimal coordination with the plans of our vendors, distributors and customers. Work related to the introduction of the Euro and the phasing out of the other currencies includes converting information technology systems; recalculating currency risk; and taking action, if needed, regarding continuity of contracts; and modifying our processes for preparing tax, accounting, payroll and customer records. The introduction of the Euro and the phasing out of the other currencies did not have a material impact on the Company’s financial condition, results of operations or cash flows.

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

~~Approval~~Notwithstanding the foregoing analysis of the direct effects of interest rate and foreign currency exchange rate fluctuations on the value of certain of the ~~Tab~~Company’s ~~Products~~investments and Coaccounts, the indirect effects of such fluctuations could have a material adverse effect on the Company’s business, financial condition and results of operations. For ~~2001~~example, ~~Stock~~international demand ~~Option~~for ~~Plan~~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’s financial condition, results of operations and cash flows.

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

PART II: OTHER INFORMATION

~~Ratification of~~ITEM ~~the~~6. EXHIBITS ~~appointment~~AND ~~of Deloitte & Touche LLP as the Company’s independent~~REPORTS ~~accountants~~ON ~~for~~FORM ~~the fiscal year ending May 31, 2002~~8-K

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

(a) Exhibits.

~~ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K~~ None

(ab) ~~Exhibits~~ Reports on Form 8-K.

~~10.1 Modification to Business Loan Agreement between Comerica Bank-California and Tab Products Co. dated November 16, 2001~~ None

~~10.2 Loan Revision/Extension Agreement between Comerica Bank-California and Tab Products Co. dated November 16, 2001~~15

~~(b) Reports~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on ~~Form~~its ~~8-K~~behalf by the undersigned thereunto duly authorized.

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

	TAB PRODUCTS CO.
	(Registrant)

Date: April 9, 2002	/s/ Donald J. Hotz
	Donald J. Hotz,
	Vice President, Chief Financial Officer & Treasurer

Date: April 9, 2002	/s/ Robert J. Crecca
	Robert J. Crecca
	Corporate Controller, Chief Accounting Officer & Asst. Secretary

The Company filed a Current Report on Form 8-K/A dated September 11, 2001 setting forth pursuant to Item 5 Amendment No. 1 to Rights Agreement, dated as of September 10, 2001, between Tab Products Co. and Mellon Investor Services LLC (f/k/a ChaseMellon Shareholder Services, L.L.C.) (filing date September 13, 2001).16

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

The Company filed a Current Report on Form 8-K dated October 18, 2001 in which it reported in Item 5 a press release of remarks made by the Company’s President and Chief Executive Officer, Gary W. Ampulski, during the Company’s Annual Meeting of Stockholders held on October 16, 2001.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

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

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