UNITED STATESSECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549

_________________

FORM 10-K

|(Mark One)
|----------
|[X]       
|[__]      

# Commission file number
000-01859

# KNAPE & VOGT
MANUFACTURING COMPANY (Exact Name of
Registrant as Specified in Its Charter)

|Michigan                                              
 (State or Other Jurisdiction of Incorporation of Organization) | 38-0722920
(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------

2700 Oak Industrial
Drive, N.E., Grand Rapids, MI 49505 (Address of principal
executive offices) (Zip Code)

(616) 459-3311 (Registrants
telephone number, including area code)

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

None

Securities
Registered pursuant to Section 12(g) of the Act:

Common Stock, par value
$2.00 per share (Title of class)

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

Indicate 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 registrant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. [X]

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [__]
No [X]

The aggregate market value of voting
stock held by nonaffiliates of the registrant (for this purpose only, the
affiliates of the registrant have been assumed to be the executive officers and directors
of the registrant) was $55,138,573 as of January 1, 2005 (based on $13.05 per share which
was the closing sale price as reported on that date by NASDAQ).

Number of shares outstanding of
each class of common stock as of August 26, 2005: 2,486,372 shares of Common Stock,
par value $2.00 per share, and 2,024,133 shares of Class B Common Stock, par value $2.00
per share.

Documents incorporated by
reference. Certain portions of the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on October 21, 2005, are incorporated by reference into
Part III of this Report.

1

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# Forward-Looking
Statements

This
Annual Report on Form 10-K contains forward-looking statements about the plans,
strategies, objectives, goals, estimates, projections, or expectations of the industry,
economics, or the Company itself. Statements, including without limitation, those related
to: future revenue, earnings, margins, growth, cash flows, operating measurements, tax
rates and tax benefits; expected economic returns; projected operating results or dividend
rates; future strength of the Company; future pension costs; future new product sales;
future marketing investments; and market risk are forward-looking statements. In addition,
forward-looking statements are identifiable by words or phrases indicating that Knape
& Vogt or its management, expects, anticipates,
believes, estimates, forecasts, intends,
is likely, projects, plans, forecasting,
optimistic, confident, opinion, or has
goals, objectives, or strategies, that a particular
occurrence or event will, may, could,
should, or will likely result in the future, that a
trend is toward a particular result or occurrence, or other stated
expectations. Accounting estimates, such as those described under the heading
Critical Accounting Policies in Item 7 of this Annual Report on Form 10-K, are
inherently forward-looking. These forward-looking statements are written as of the date of
this Annual Report. These statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions that are difficult to predict with respect
to timing, extents, and likelihood. Actual results and outcomes may materially differ from
any forward-looking statement.

Besides
risks and uncertainties described in forward-looking statements contained in this Annual
Report and other reports filed with the Securities and Exchange Commission, there are
several important factors that may cause actual results to materially differ, including
our ability to:

| |  | Improve
sales growth;
| | - | ---------------------

| |  | Increase
gross margin;
| | - | ----------------------

| |  | Control
the price of raw materials;
| | - | -----------------------------------

| |  | Reduce
operating costs;
| | - | -----------------------

| |  | Maintain/implement
foreign sourcing;
| | - | ------------------------------------

| |  | Sell
assets classified as held for sale on favorable terms;
| | - | -----------------------------------------------------------

| |  | Continue
to meet the terms of our debt covenants; and
| | - | -----------------------------------------------------

| |  | Achieve
other plans, strategies, objectives, goals, or expectations described in this Annual
Report.
| | - | ----------------------------------------------------------------------------------------------------

Forecasted
sales are subject to competition from many sources. Competitive pressures in these and
other business segments may result in unexpected reductions in sales volumes, product
prices or service fees.

Our
operating and administrative expenses may be adversely affected by unexpected costs
associated with, among other factors:

| |  | Future
business acquisitions;
| | - | -----------------------------

| |  | Business
and asset divestures;
| | - | ------------------------------

| |  | Increased
transportation or fuel costs;
| | - | ---------------------------------------

| |  | Changes
in consumer preferences or spending patterns;
| | - | -----------------------------------------------------

| |  | Losses
or financial difficulties of customers and suppliers;
| | - | ------------------------------------------------------------

| |  | Changes
in accounting policies, practices, or estimates;
| | - | --------------------------------------------------------

| |  | Changes
in federal, state or local tax laws, regulations, and interpretations.
| | - | ------------------------------------------------------------------------------

This
should not be considered as a complete list of all the economic, competitive,
governmental, technological and other factors that could adversely affect our expected
consolidated financial position, results of operations or liquidity.

Historical
operating results are not necessarily indicative of the results that may be expected in
the future. New risks emerge from time-to-time, that may cause actual results to differ
materially from those contained in any forward-looking statements. Due to these risks and
uncertainties, investors should not place undue reliance on forward-looking statements as
a prediction of actual results. The Company undertakes no obligation to update or change
forward-looking statements, whether as a result of new information, future events, or
other information that we obtain after the date of this Annual Report.

2

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# PART IITEM 1  BUSINESS

# Item 1(a)  General
Development of Business

Knape
& Vogt Manufacturing Company is engaged primarily in the design, manufacture, and
marketing of hardware, storage-related components and ergonomic products that serve the
consumer, contract builder, hardware, and original equipment manufacturer
(OEM) markets. KV was incorporated in Michigan in 1906, reorganized in
Delaware in 1961, and reorganized in Michigan in 1985. Unless otherwise noted or indicated
by the context, the term Company or KV includes Knape & Vogt
Manufacturing Company, its predecessors and its subsidiaries.

# Item 1(b) Financial
Information About Industry Segments

Beginning
in fiscal 2004, management further defined the business divisions into market channels and
began making business decisions and reviewing financial information by market channel
rather than by the previous Business Products and Home & Commercial Products
divisions.

The
Business Products division was segregated into two market channels: OEM and Idea. The OEM
market channel sells precision drawer slides, hardware and ergonomic products to original
equipment office furniture manufacturers and in fiscal 2005 accounted for approximately
27.4% of consolidated net sales. The Idea market channel sells ergonomic products to
independent office furniture dealers and in fiscal 2005 accounted for approximately 5.8%
of consolidated net sales. These dealers purchase product from office furniture
manufacturers and resell the furniture along with design and installation services to the
end customer. These markets sell the KV® brand of hardware including drawer slides.
Drawer slides include precision, Euro-style and utility slides. Precision drawer slides
use ball bearings, while Euro-style and utility drawer slides use rollers. In addition,
these two markets also sell the idea@WORK brand of ergonomic products. The ergonomic
products include adjustable keyboard trays, gel wrist rests, floating mousepads,
flat-screen monitor arms, office lights, height adjustable tables and organization tools.

These
markets develop, market, and distribute primarily in the United States and Canada. They
compete with several large producers of ergonomic support systems and precision drawer
slides, and many smaller domestic and foreign manufacturers that compete primarily on the
basis of product quality, features, and price.

The
Home & Commercial Products division was segregated into two market channels: consumer
and distribution/other. The consumer market channel sells a majority of KVs product
lines to retailers and in fiscal 2005 accounted for approximately 20.1% of consolidated
net sales. The distribution/other market channel sells many of KVs product lines to
kitchen and bath OEM manufacturers and full line woodworking distributors and in fiscal
2005 accounted for approximately 46.7% of consolidated net sales. These markets sell the
KV brand of products that include a complete line of decorative and wall-attached shelving
systems, builders hardware and drawer slides. In addition, these markets also sell
the Real Solutions for Real Life brand of kitchen and bath storage products.

These
markets develop, market and distribute primarily in the United States and Canada. The
markets are highly competitive. KV competes primarily on the basis of product design,
product quality, price, on-time delivery, and customer service. The precision slide market
consists of three large domestically based manufacturers, several smaller domestic
manufacturers, and an increasing number of foreign manufacturers that compete primarily on
the basis of product quality and price.

Further
information relating to industry segments is provided in Note 13 to the Consolidated
Financial Statements included in Item 8 of this Report.

# Item 1(c) Narrative
Description of Business

Products,
Services, Markets and Methods of Distribution. KVs storage products include a
complete line of decorative and utility wall-attached shelving systems and drawer slides.
Precision drawer slides use ball bearings, while Euro-style and utility drawer slides use
rollers. In addition, KVs many different hardware products include closet rods,
kitchen storage products and various fixtures. KVs ergonomic products include
adjustable keyboard trays, gel wrist rests, floating mousepads, flat-screen monitor arms,
office lights and height adjustable tables.

1

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KV
primarily employs a direct sales force that calls on most of the customers in the
consumer, distribution and OEM markets, while most of the office furniture dealers are
served through independent sales representatives.

New
Product and Capital Spending Information. Management believes that capital spending in
fiscal 2006 will be approximately $3.0 million. The fiscal 2006 spending is planned for
investments to bring new products and product enhancements to KV customers and for
investment in our Asian facility.

Sources
and Availability of Raw Materials. Most of KVs storage products are produced
primarily from steel or wood. KVs manufacturing materials are available from a
significant number of sources within the United States, Canada, Europe, and Asia.
Historically, KV has not experienced any difficulties in obtaining these raw materials.
The raw materials used are neither unique to the industry nor are they rare.

As
a result of market conditions during the last half of fiscal 2004, KV began to realize
increased steel costs for the domestic production of many of its products. These
conditions persisted through the first half of fiscal 2005 and then in the last half of
fiscal 2005, steel costs decreased slightly. These market fluctuations have not affected
KVs ability to obtain such raw materials. The uncertainty in the steel market makes
it difficult for management to predict steel prices. This issue is more fully addressed in
the Managements Discussion and Analysis section of this report.

Patents,
Licenses, Etc. Patents, trademarks and licenses play a part in KVs business, but
KV as a whole is not dependent to any material extent upon any single patent.

Seasonal
Nature of Business.  KV's business is not seasonal.

Working
Capital Practices. KV does not believe that it, or the industry in general, has any
special practices or special conditions affecting working capital items that are
significant for an understanding of KVs business.

Importance
of Limited Number of Customers. KV sells to the consumer, OEM and specialty
distributor markets, as well as direct sales to the dealer network. The consumer market is
comprised of a broad base of retail outlets. The specialty distributor market is more
concentrated with fewer customers and is more closely tied to the construction industry.
The OEM market is comprised of sales to kitchen and bath cabinet manufacturers and sales
to the office furniture industry. The dealer network is also closely tied to the office
furniture industry. KV estimates that at present it has over 2,000 active customers with
approximately 30,000 outlets, of which the five largest customers account for
approximately 31.5% of gross sales. KVs largest customer accounts for approximately
13.2% of gross sales.

Backlog
of Orders. As of July 2, 2005, KVs backlog of unfilled orders was $4.9 million.
At July 3, 2004, the Companys backlog totaled $4.5 million. It is expected that
substantially all the orders forming the backlog at July 2, 2005, will be filled during
the current fiscal year. Many orders received are reflected in the backlog for only a
short period while other orders specify delayed shipments and are carried in the backlog
for up to one year. Accordingly, the amount of the backlog at any particular time is not
necessarily indicative of the level of net sales for a particular succeeding period.

Government
Contracts. While KV does have a multiple award contract with the General Services
Administration (GSA) for certain of its ergonomic products, the sales volume
under this contract does not result in a significant risk if the government were to
terminate this contract. This contract contains standard price reduction provisions.

Competition.       
          All aspects of KVs business are highly competitive. Competition is based
          upon price, product offering, service and quality. In the various markets served
          by KV, it competes with a number of manufacturers that have significantly
          greater resources and sales, including several conglomerate corporations, and
          with numerous smaller companies. While KV is not aware of any reliable
          statistics that are available to enable KV to accurately determine its relative
          position in the industry, either overall or with respect to any particular
          product or market, KV believes that it is one of the three leading manufacturers
          of drawer slides in North America.

Research,
Design and Development. Research, design and development efforts represent one of
KVs core strengths. Through research, KV seeks to define and clarify customer needs
and problems and to design innovative products, which solve these customer needs and
problems. Approximately $1,699,000 was spent in fiscal 2005 in the development of new
products and in the improvement of existing products, compared with $2,200,000 spent in
fiscal 2004 and $2,031,000 in fiscal 2003 for the same purposes. In addition, royalties
paid to designers of KVs products are variable based on sales volumes and are not
included in research and development costs.

2

---



Environmental
Matters. KV does not believe, based on current facts known to management, that
existing environmental laws and regulations have had or will have any material effects
upon the capital expenditures, earnings, or competitive position of KV.

Human
Resources. KV considers one of its major competitive strengths to be its human
resources. There have been no work stoppages or labor disputes in KVs history, and
its relations with its employees are considered good. At July 2, 2005, KV employed 591
persons. Collective bargaining agents represent none of KVs employees. In addition
to its employee work force, KV uses purchased labor to meet uneven demand in its
manufacturing operations.

Forward-Looking
Statements. The matters discussed in this Item 1 include forward-looking statements.
See Forward-Looking Statements at the beginning of this Annual Report on Form
10-K.

Available
Information. The address of our web site is www.kv.com. We make our Annual
Reports on form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
other reports (and amendments to those reports) filed and furnished pursuant to Section
13(a) on the Securities Exchange Act available on our web site as soon as reasonably
practicable after we electronically file or furnish such materials with the Securities and
Exchange Commission. Interested persons can view such materials without charge by clicking
on Investor Info and then Annual Reports on our web site.

# Item 1(d) Information
About Foreign Operations

KVs
Canadian operations accounted for approximately 8.5% of consolidated net sales.
Approximately 2.6% of consolidated net sales were derived from export shipments from KV
United States operations to customers in other foreign countries. KV does not know of any
particular risks attendant thereto, except that fluctuating exchange rates between the
United States and Canadian currencies and other factors beyond the control of KV, such as
tariff and foreign economic policies, may affect future business results. Reference is
made to Note 13 of the Notes to the Companys Consolidated Financial Statements
contained herein for the fiscal year ended July 2, 2005, for a presentation of
additional information concerning the KV foreign operations.

# ITEM 2 PROPERTIES

KV
owned, leased or reserved for future lease the following offices and manufacturing
facilities as of July 2, 2005:

|Location                                                                                                                            | Description                                                                                                                                                                                                                                                                                                                                                 | Interest                                                                         
|----------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------
|Grand Rapids, Michigan
Muncie, Indiana (1)   
Mississauga, Ontario  
Chicago, Illinois     
Chicago, Illinois     
Ho Chi Minh City | Executive offices and manufacturing facilities;
444,000 sq. ft. on 41 acres.
Held for Sale;                                 
110,000 sq. ft. on 37 acres.                   
Sales Office; 2,000 sq. ft.                    
Showroom; 3,000 sq. ft.                        
Showroom; 1,000 sq. ft.                        
Manufacturing; 5,000 sq. mtrs. | Owned
     Owned/
 Held for Sale
     Leased
     Leased
     Leased
    Reserved

The
facilities indicated as owned, are owned by KV and are not subject to material
encumbrances. KV believes that its facilities are generally adequate for its operations
and are maintained in a state of good repair. The Company believes it is in compliance
with all applicable state and federal air and water pollution control laws. During the
five years ended July 2, 2005, KV spent approximately $21,000,000 for expansion,
modernization and improvements of its facilities and equipment.

(1)    
          Facility has been exited and marketed for sale as part of a restructuring action
          announced during the third quarter of fiscal 2005. This property remains listed
          for sale at July 2, 2005.

3

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# ITEM 3  LEGAL
PROCEEDINGS

In
1997, KV was sued by a former employee seeking additional benefits under an executive
retirement plan. This litigation has been dismissed and appealed through various courts.
In January 2005, the Sixth Circuit Court of Appeals denied the plaintiffs appeal of
the dismissal.

The
Canada Customs and Revenue Agency (CCRA) has performed an audit of KVs
sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary results from a
joint review by KV and its customs broker indicate that KV may be liable for certain
customs transactions, however, the amount of any such potential liability is unknown at
this time. KV is defending its position that Knape & Vogt Canada is the importer of
record for all Knape & Vogt goods shipped into Canada and management believes that
based on the information available at this time, any liability owed to the CCRA will not
have a material adverse effect on KVs earnings.

During
the second quarter of fiscal 2005, a competitor filed a suit in the U.S. District Court of
the Central District of California alleging that KV infringes two of the competitors
U.S. patents. The competitor is seeking monetary damages and injunctive relief. KV has
received an opinion from its outside patent counsel that KVs products do not
infringe the competitors patents. KV has answered that it denies any liability and
will vigorously defend the suit.

KV
is also subject to other legal proceedings and claims, which arise in the ordinary course
of business.

In
the opinion of management, based on the information presently known and taking into
account established accruals of approximately $431,000 at July 2, 2005, the ultimate
liability for these matters will not have a material adverse effect on KVs financial
position or the results of its operations.

# ITEM 4 SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

No
matters were submitted to a vote of security holders during the fourth quarter of the
fiscal year ended July 2, 2005.

4

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# PART II

# ITEM 5  MARKET
PRICE FOR REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Market
Price.KVs Common Stock is traded on the NASDAQ National Market under the
ticker symbol KNAP. Stock price quotations can be found in major daily newspapers (listed
KnapeV) and in the Wall Street Journal (listed KnapeVogt). As of August 26, 2005, there
were approximately 3,000 shareholders of record of the Companys Common Stock and
Class B Common Stock.

|       | Fiscal 2005 | Fiscal 2004
|------ | ----------- | -----------
|       |             |            
|
|       |             |            
|       |             |            
|First  |             | $13        
|       |            
|Second |             | $14        
|       |            
|Third  |             | $13        
|       |            
|Fourth |             | $13        

As
of August 26, 2005, there were approximately 200 shareholders of KVs Class B Common
Stock. There is no established public trading market for this class of common equity.
Class B common stock is subject to certain restrictions on transfer, but is convertible
into Common Stock on a share-for-share basis at any time.

Dividends.       
          KV paid quarterly per share cash dividends of $0.165 on its shares of Common
          Stock and $0.15 on its shares of Class B Common Stock during the last two fiscal
          years.

On
August 12, 2005, the Board of Directors declared a $0.165 per share cash dividend on
shares of KVs Common Stock and $0.15 per share cash dividend on shares of its Class
B Common Stock, payable September 9, 2005, to shareholders of record on August 26,
2005.

While
it is anticipated that KV will continue to pay quarterly cash dividends, the amount and
timing of such dividends is subject to the discretion of the Board depending on KVs
future results of operations, financial condition, capital requirements, and other
relevant factors.

Securities
Authorized for Issuance Under Equity Compensation Plans.KV had the following equity
compensation plans at July 2, 2005:

# Equity Compensation
Plan Information

|Plan category                | Number of securities to 
be issued upon exerciseof outstanding options
          (1) | Weighted-average 
exercise price ofoutstanding options
        (2) | Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securitiesreflected in column (1))
              (3)
|---------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |                                                                                      |                                                                    |                                                                                                                                                             
|Equity compensation plans    |                                                                                      |                                                                    |                                                                                                                                                             
|approved by security holders |                                                                                      | 13,750                                                             |                                                                                                                                                             
|                             |                                                                                      |                                                                    |                                                                                                                                                             

These equity compensation plans are
more fully described in Note 11 to the Consolidated Financial Statements.

5

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# ITEM 6  SELECTED
FINANCIAL DATA

|For the Year Ended                                                  | 2005 | 2004 | 2003 | 2002        | 2001
|------------------------------------------------------------------- | ---- | ---- | ---- | ----------- | ----
|                                                                    |      |      |      |             |     
|Summary of Operations                                               |      |     
|Net sales                                                           |      |      | $    | 157,365,965 |     
|Gross profit                                                        |      |      | $    | 30,118,067  |     
|Gross profit %                                                      |      |      |      | 19.1%       |     
|Selling, general and administrative                                 |      |      | $    | 22,351,696  |     
|Selling, general and administrative %                               |      |      |      | 14.2%       |     
|Impairment and restructure                                          |      |      | $    | 2,270,021   |     
|Impairment and restructure  %                                       |      |      |      | 1.4%        |     
|Operating income                                                    |      |      | $    | 5,496,350   |     
|Operating income  %                                                 |      |      |      | 3.5%        |     
|Net income                                                          |      |      | $    | 3,080,272   |     
|                                                                    |      |     
|Common Stock Data                                                   |      |     
|Basic and diluted earnings per share                                |      |      | $    | 0.68        |     
|Weighted-average shares outstanding                                 |      |      |      | 4,514,243   |     
|Dividends per share--common                                         |      |      | $    | 0.66        |     
|Dividends per share--Class B common                                 |      |      | $    | 0.60        |     
|Year-end stock price                                                |      |      | $    | 11.95       |     
|                                                                    |      |     
|Year-end Financial Position                                         |      |     
|Total assets                                                        |      |      | $    | 92,388,638  |     
|Working capital                                                     |      |      | $    | 31,239,421  |     
|Current ratio                                                       |      |      |      | 2.4         |     
|Total long-term debt and capital leases                             |      |      | $    | 22,524,129  |     
|Total long-term debt and capital leases as a % of total capital (a) |      |      |      | 37.2%       |     
|Stockholders' equity                                                |      |      | $    | 38,107,877  |     
|                                                                    |      |     
|Other Data/Key Ratios                                               |      |     
|Capital expenditures                                                |      |      | $    | 2,416,547   |     
|Depreciation and amortization                                       |      |      | $    | 5,969,522   |     

(a)    
          Total capital is defined as the sum of long-term debt plus stockholders
          equity.

6

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# ITEM 7 
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND  FINANCIAL CONDITION

The
following discussion and analysis provides information which management believes is
relevant to an assessment and understanding of KVs results of operations and
financial condition. The discussion should be read in conjunction with the Consolidated
Financial Statements and Notes.

# Basis of Presentation

When
considering year-over-year growth statistics, it is important to keep in mind that fiscal
2004 contained 53 weeks, compared to 52 weeks in fiscal 2005 and 2003.

# Overview

Knape
& Vogt (KV) is a leading manufacturer of functional hardware,
storage-related components and ergonomic products with a long history dating back to 1898.
We complement our manufacturing capabilities with our design and distribution expertise.

Beginning
in fiscal 2004, management further defined the business divisions into market channels and
began making business decisions and reviewing financial information by market channel
rather than by the previous Home & Commercial Products and Business Products
divisions. Due to the complexity in obtaining this information for prior years,
restatement of prior year results by market is impracticable and net sales for fiscal 2003
are shown below segregated by divisions only.

The
Home & Commercial Products division was segregated into two market channels: consumer
and distribution/other. The consumer market channel sells a majority of the Companys
product lines to retailers. The distribution/other market channel sells many of the
KVs product lines to kitchen and bath OEM manufacturers and full line woodworking
distributors. These markets sell the KV® brand of products that include: a complete
line of decorative and wall-attached shelving systems, builders hardware and drawer
slides. In addition, these markets also sell the Real Solutions for Real Life brand
of kitchen and bath storage products.

The
Business Products division is segregated into two market channels: OEM and Idea. The OEM
market channel sells precision drawer slides, hardware and ergonomic products to original
equipment office furniture manufacturers. The Idea market channel sells ergonomic products
to independent office furniture dealers. These dealers purchase product from office
furniture manufacturers and resell the furniture along with design and installation
services to the end customer. These markets sell the KV® brand of hardware including
drawer slides. Drawer slides include precision, Euro-style and utility slides. Precision
drawer slides use ball bearings, while Euro-style and utility drawer slides use rollers.
In addition, these two markets also sell the idea@WORK brand of ergonomic products.

In
January 2005, KV announced its decision to close its Muncie, Indiana facility and relocate
the wire processing operations to its Grand Rapids facility. The relocation was completed
in June 2005. The Muncie plant was closed and is currently being held for sale.

During
the second quarter of fiscal 2005, KV recognized asset impairment charges on certain
manufacturing equipment utilized for backup production of a few of its precision drawer
slide products.

In
total, $2.3 million pre-tax has been recorded as impairment/restructuring charges during
fiscal 2005 in connection with these items.

Since
January 2004, the price of steel has increased significantly and for several months during
fiscal 2005 reached an increase of over 70% compared to January 2004. While the cost of
steel has declined in the fourth quarter of fiscal 2005, it still remains approximately
60% higher than the January 2004 benchmark. A more detailed discussion of this issue
follows in the Gross Margin section of this report.

7

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# Critical Accounting
Policies

This
discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements. The preparation of these financial statements
requires us to make estimates and assumptions that affect the reported amounts. On an
ongoing basis, we evaluate our estimates, which are based on historical experience and on
various other assumptions and factors that we believe to be reasonable under the
circumstances. Based on our ongoing review, we will make adjustments, as we consider
appropriate under the current facts and circumstances.

We
believe that the following represent the more critical estimates and assumptions used in
preparation of our consolidated statements.

| |  | Revenue
recognition  We record revenue when title to the product and risk of ownership
pass to the buyer. Sales are shown net of returns, discounts and any other form of sales
incentive, including cooperative advertising and rebates. In certain circumstances, KV
provides buyback programs and markdown allowances to its customers. These amounts are
fixed at the start of the contract period with the customer and accounted for in
accordance with Statement of Position No. 93-7, Reporting on Advertising Costs and
Emerging Issues Task Force No. 01-9, Accounting for Consideration Given by a Vendor
to a Customer. The cost of these programs are either expensed at the time of the
initial shipment of the goods or are expensed on a prorated basis over the sales of the
contract, if KV has a written commitment from the customer.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Allowance
for uncollectible accounts receivable  We record allowances for losses that we
may incur from the inability of certain of our customers to pay for products or services
that they have purchased. In determining these allowances, we take into consideration the
financial condition of our customers, previous payment history and the age of the
outstanding balances. We monitor customers balances on a monthly basis and assess
the adequacy of the allowances recorded. Certain of KVs customers do have
outstanding receivable balances that could have a material impact on the financial
results in the event that those customers were unable to satisfy their obligations.
Management, at this time, is not aware of any customers in this situation. Historically,
KV has been able to effectively monitor the creditworthiness of its customers on a
monthly basis and has not experienced a material loss.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Warranty
reserve- The Company provides a limited lifetime warranty on most products sold.
Depending on the product, the lifetime warranty is generally defined as a range of three
to fifteen years. The Company does not sell or otherwise issue warranties or warranty
extensions as stand alone products. The warranty provides replacement of the product as
the resolution for any warranty claims. Reserves have been established for the various
costs associated with the Companys warranty program. General warranty reserves are
based on historical claims experience and other currently available information and are
periodically adjusted for business levels and other factors. Specific reserves are
established if an issue is identified with the amounts for such reserves based on the
estimated cost to correct the problem. The actual warranty expense could differ from the
estimates made by the Company based on product performance.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Inventory
reserves  We provide reserves for inventory that we consider obsolete or slow
moving, utilizing assumptions about future demand for our products. We monitor our
inventory by type, age and usage on a monthly basis to determine the reserves recorded.
The majority of our products can be sold across various market channels. Therefore, we
have been successful on a historic basis in minimizing our risk of slow-moving or
obsolete inventory.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Impairment
of long-lived assets  We periodically review the carrying value of our
long-lived assets held and used, including goodwill and other intangible assets. This
review is performed using estimated future cash flows. If the carrying value of a
long-lived asset is considered to be impaired, an impairment charge is recorded for the
amount by which the carrying value of the long-lived asset exceeds its fair value.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Pension
and Other Postretirement Benefits  Accounting for defined-benefit pension plans
involves estimating the cost of benefits to be provided in the future, based on vested
years of service, and attributing those costs over the time period each employee works.
The most significant factor affecting our pension costs is the fair value of the plan
assets and the selection of key assumptions, including the discount rate and the expected
return on plan assets. In fiscal 2005, we decreased our discount rate from 6.25% from
5.25%. We maintained the expected return on plan assets at 8.00%. While we believe the
assumptions selected are reasonable, significant differences in our actual experience or
significant changes in our assumptions may materially affect our pension obligations and
our future expense. Refer to Note 9 to the Consolidated Financial Statements for more
information regarding costs and assumptions for our employee retirement plans.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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| |  | Loss
Contingencies KV is subject to legal proceedings and claims arising out of the
normal course of business. KV routinely assesses the likelihood of any adverse judgments
or outcomes to these matters, as well as ranges of probable losses. A determination of
the amount of the reserves required, if any, for these contingencies is made after
thoughtful analysis of each known issue and an analysis of historical claims experience
for incurred but not reported matters. The required reserves may change in the future due
to new developments in each matter. KV has an active risk management program consisting
of numerous insurance policies secured from multiple carriers. These policies provide
coverage that is utilized to minimize the impact, if any, of the legal proceedings. For
further discussion, see Note 15 to the Consolidated Financial Statements.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management
has discussed the development and selection of these critical accounting policies with the
Audit Committee of our Board of Directors and the Audit Committee has reviewed KVs
disclosures relating to them in this Management Discussion and Analysis.

In
addition, we have not recently experienced changes in circumstances that would have
significantly impacted any of the reserves discussed above or our evaluation of the
carrying value of the long-lived assets. Further, in accordance with SFAS No. 144,
paragraph 8; no events have occurred which would require us to test for recoverability of
our long-lived assets, except as disclosed in Note 3.

# Results of Operations

The
table below shows certain items in our Consolidated Statements of Operations as a
percentage of net sales:

|Year Ended                                   | July 2,2005 | July 3,2004 | June 28,2003
|-------------------------------------------- | ----------- | ----------- | ------------
|                                             |             |             |             
|Net sales                                    |             | 100         | .0%         
|Cost of sales                                |             | 80          | .9          
|                                             |             |             |             
|Gross profit                                 |             | 19          | .1          
|Selling, general and administrative expenses |             | 14          | .2          
|Impairment/Restructure                       |             | 1           | .4          
|                                             |             |             |             
|Operating income                             |             | 3           | .5          
|Other expense                                |             |             | .9          
|                                             |             |             |             
|Income before income taxes                   |             | 2           | .6          
|Income taxes                                 |             |             | .6          
|                                             |             |             |             
|Net income                                   |             | 2           | .0%         
|                                             |             |             |             

# Sales

The
table below summarizes our sales by division for the past three fiscal years (in millions)
and by market:

|Year Ended              | July 2,2005 | %         | July 3,2004 | %   | June 28,2003 | %        
|----------------------- | ----------- | --------- | ----------- | --- | ------------ | ---------
|                        |             |           |             |     |              |          
|Business Products OEM   |             | $      43 | .1          | 27  | .4%          | $      37
|Business Products Idea  |             | 9         | .1          | 5   | .8%          | 9        
|                        |             |           |             |     |              |          
|Total Business Products |             | $      52 | .2          | 33  | .2%          | $      46
|                        |             |           |             |     |              |          
|                        |            
|Consumer                |             | $      31 | .7          | 20  | .1%          | $      34
|Distribution and Other  |             | 73        | .5          | 46  | .7%          | 68       
|                        |             |           |             |     |              |          
|Total Home and          |            
|Commercial Products     |             | $    105  | .2          | 66  | .8%          | $    102 
|                        |             |           |             |     |              |          
|                        |            
|Total Net Sales         |             | $    157  | .4          | 100 | .0%          | $    148 
|                        |             |           |             |     |              |          

9

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Consolidated
net sales for fiscal 2005 increased 5.7% when compared to fiscal 2004, which followed an
increase of 19.3% when comparing fiscal 2004 to fiscal 2003. It should be noted that
fiscal 2004 included 53 weeks of sales versus 52 weeks in both fiscal 2005 and 2003.
Excluding the extra week of sales, fiscal 2005 sales would have increased 7.8% over fiscal
2004 and sales for fiscal 2004 would have increased approximately 16.9% over fiscal 2003.

Our
Business Products division sales increased 12.5% when compared to fiscal 2004, following
an increase of 30.2% in fiscal 2004 when compared to fiscal 2003. Business and
Institutional Furniture Manufacturers Association (BIFMA), reported that the office
furniture shipments for the industry as a whole had grown 9.7% during the eleven-month
period from July 2004 to May 2005. This followed an increase in shipments of 1.9% in
fiscal 2004. KV has been successful in growing sales to the Business Product original
equipment manufacturers (OEMs) with the addition of new products, in
particular the addition of a number of customer specific versions of KVs precision
ball bearing slides and the new heavy-duty 8800 precision slide with the patented
interlock system. The line of height adjustable tables received a number of aesthetic
design changes, including a cast aluminum foot and a quieter, faster motor on the electric
versions of the tables and have been well received by our OEM customers.

Late
in fiscal 2005, management changed the Idea channel increasing the direct sales force. We
have a number of new products in this channel and believe utilizing a direct sales focus
will promote growth in this important channel of our business.

The
Business Products division has also begun to explore alternative markets for its products
including the automotive industry and the home appliance market.

Our
Home and Commercial Products division sales for fiscal 2005 increased by 2.7% when
compared to fiscal 2004, following an increase of 14.9% for fiscal 2004 when compared to
fiscal 2003. New product sales, including the Pir-o-et height adjustable lazy susan
and the Virtu line of Italian-designed closet and kitchen products, were primarily
the reason for this growth.

While
we saw moderate growth overall in this division, our U.S. consumer sales declined during
fiscal 2005. This channel of our business had been posting revenue growth during the past
couple of fiscal years, but had been unprofitable. During the second quarter of fiscal
2005, we performed an in depth review of our top 50 customers in this channel and
developed a strategy for making these customers profitable. As a result of this process,
we eliminated a number of the promotional programs that had been utilized during the past
few years and discontinued sales to certain smaller customers. While this rationalization
process reduced net sales by approximately $1.8 million in fiscal 2005, the U.S. consumer
channel was profitable for the last half of fiscal 2005. We believe that we are now
positioned to post modest, profitable growth in this channel.

We
offer a consignment inventory program for certain customers. Under this program, the
customers are not invoiced for product until the Company receives notice that the customer
has utilized the inventory at their location. At July 2, 2005 and July 3, 2004, the
inventory in this program totaled $3.5 million and $3.3 million at cost, respectively.

New
product sales were approximately $31.1 million in fiscal 2005 compared with $24.7 million
in fiscal 2004 and $11.7 million in fiscal 2003. New product introductions, along with
value-added services, such as vendor-managed inventory, remain key components of our
strategy. The Company consistently defines new product sales, including product
extensions, as those products sold within a three-year period from the date of
introduction.

# Gross Profit

Gross
profit, as a percentage of net sales, was 19.1% in fiscal 2005, compared to 20.6% in
fiscal 2004 and 21.8% in fiscal 2003. Since January 2004, the price of steel has increased
significantly and for several months during fiscal 2005 reached an increase of over 70%
compared to January 2004. While the cost of steel has declined in the fourth quarter of
fiscal 2005, it still remains approximately 60% higher than the January 2004 benchmark.
The increased steel costs resulted in KV paying approximately $9.3 million more for raw
steel during the fiscal year than it would have if the steel prices had remained stable at
the January 2004 benchmark. During fiscal 2005, KV successfully passed through all but
$1.1 million of the added costs to its customers. In total, increased steel costs reduced
KVs gross margins by approximately 1.8 percentage points in fiscal 2005 and were
also the primary reason for the decrease in gross margins in fiscal 2004 when compared to
fiscal 2003.

10

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While
it is difficult to predict the cost of steel, market pricing appears to have stabilized or
slightly declined during the last half of fiscal 2005. KV has a contract for most of its
steel that is adjusted for market pricing on a calendar quarter basis.

During
the second quarter of fiscal 2005, KV recorded additional depreciation expense of $304,116
in cost of goods sold related to certain equipment that it had been utilizing for backup
production of certain precision drawer slide products. Those products are now being
partially sourced from overseas rather than manufactured domestically, so the extra
capacity is no longer required. The useful life of the equipment identified for disposal
was adjusted accordingly for depreciation purposes.

Domestically,
KV remains committed to utilizing lean manufacturing initiatives to minimize its
manufacturing costs. Utilizing the concepts of lean manufacturing, we reduced the
production square footage requirements in our Grand Rapids facility, which allowed us to
relocate our kitchen and bath storage accessory production from the Muncie facility to our
main manufacturing site in Grand Rapids. The charges related to this relocation are
discussed later in Managements Discussion and Analysis. We estimate that this
consolidation will reduce our manufacturing costs by more than $1.5 million pre-tax
annually in future years.

Asian
producers of both utility and precision drawer slides continue to pose a competitive
threat, particularly from a pricing perspective. In response, KV has established solid
vendor relationships with three key producers of these slides in Asia and has been
utilizing product sourced from these manufacturers to successfully address pricing
pressures. In addition, we have taken preliminary steps to establish our own manufacturing
entity in Asia. We have filed the necessary registrations for the entity and anticipate
the startup of production during calendar 2006. The total initial investment is
anticipated to be less than $1.0 million. Management believes that utilizing these
low-cost production resources will help it remain competitive in the U.S. marketplace and
will allow it to improve the profitability and competitiveness of its Business Products
OEM market.

To
date, all of the slides produced in Asia have represented incremental sales to KV and have
not reduced volume being produced in the U.S. KVs domestic production capabilities
are being focused on manufacturing the new, more complex products, which typically
represent higher margin items.

During
fiscal 2005, the Business Products OEM segment has recorded their cost for certain
precision slides partially sourced from Asia and partially produced domestically at the
Asian cost regardless of where the slides were produced. This resulted in improved
profitability for this segment of the business and correspondingly reduced the
profitability of the Manufacturing segment. See Note 10 to the Consolidated Financial
Statements for a summary of profitability by business segment.

# Selling, General and
Administrative

Selling,
general and administrative expenses, as a percent of net sales, were 14.2% in fiscal 2005,
compared to 15.8% in fiscal 2004 and 18.6% in fiscal 2003. In both fiscal 2005 and 2004,
KV has been successful in leveraging its selling and administrative costs as sales
increased, while still making certain that spending was sufficient to ensure its ongoing
ability to develop and introduce new products to the market and have the appropriate
advertising materials available to introduce those products. The fiscal 2003 results
reflected additional marketing to reintroduce the KV line of kitchen and bath accessories
under the Real Solutions for Real Life logo, investments in selling efforts to the
distribution channel and the cost to convert from independent third party representatives
to a direct sales force. Fiscal 2003 also included a pre-tax gain of $0.8 million due to
the successful resolution of certain legal matters.

# Impairment and Severance
Costs

During
fiscal 2005, KV recorded a pre-tax impairment charge of $115,088 related to the precision
drawer slide equipment discussed above that will be held and used or held for sale.

In
January 2005, the Board of Directors approved a restructuring plan to close its Muncie,
Indiana facility and relocate its operations into existing available space in the Grand
Rapids, Michigan facility. KV recorded pre-tax impairment charges for the write down of
the long-lived assets; including real estate and manufacturing equipment located in the
Muncie facility, to the lower of their carrying value or their estimated fair values, less
the disposition costs. Fair value estimates were determined by KV management, with the
assistance of independent appraisers, and were based on estimated proceeds from sale. The
fair value of the real estate was determined to be $1.0 million and the equipment was
adjusted to a fair value of $220,000. The facility was closed and the relocation of the
operations was completed in June 2005.

11

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KV
also incurred certain exit costs in connection with the closure of the Muncie facility,
including severance and the relocation of certain equipment and inventory. The
severance/stay-on bonus costs and the facility exit and other costs were expensed in the
Manufacturing division as incurred.

The
impairment and exit costs incurred and expensed during fiscal 2005 related to the closure
of the Muncie facility totaled approximately $2.3 million pre-tax.

Management
believes that the decision to relocate the Muncie operations will lower KVs overall
manufacturing costs. KV will be able to utilize the pool of stable skilled employees at
its Grand Rapids manufacturing facility, including the existing manufacturing expertise of
its in-house kaizen staff and industrial engineers. In addition, management believes that
the consolidation of operations will improve KVs speed to market on its kitchen and
bath accessories, as the new product engineers and test lab are located in Grand Rapids.

Management
has estimated the payback period for the closing of the Muncie facility to be
approximately a year and a half from the closure date.

During
the first quarter of fiscal 2003, we recorded $271,325 (pre-tax) of severance costs,
primarily related to the resignation of two of our executive officers in August 2002.

# Interest Expense and
Other Net Expenses

Interest
expense was $1.6 million in both fiscal 2005 and 2004, compared to $1.5 million in fiscal
year 2003. Overall, interest expense has remained relatively stable over the past three
fiscal years. Slight variations reflect the impact of higher or lower balances outstanding
on the revolving credit facility and the increase in the short-term interest rates.

Net
other income was $155,391 in fiscal 2005 compared to net other expense of $2,202 in fiscal
2004. The other income recorded in fiscal 2005 reflects a settlement payment received in
connection with one of KVs patents, along with favorable exchange rate gains. The
net other expense in fiscal 2004 was negatively impacted by exchange rate losses in our
Canadian entity. Net other income in fiscal 2003 of $255,854 included interest of
approximately $95,000 received from the Internal Revenue Service for amounts refunded due
to the filing of amended returns.

# Income Taxes

The
effective tax rate for fiscal 2005 was 23.9%. During the third quarter of fiscal 2005, the
Company recognized one-time tax benefits of $594,000. Of this total, $372,000 related to
the expiration of a certain statutory period and the related reversal of the associated
tax contingencies. The remaining $222,000 of tax benefits was related to amended filings
for prior year research and development credits. Excluding this benefit, the effective tax
rate would have been 38.6%.

The
effective tax rate for fiscal 2004 was 32.4%. The Company benefited from the adjustment of
certain deferred tax valuation reserves that were deemed to no longer be necessary and
from the completion of a Canadian audit of taxes for fiscal years 1998 and 1999. Excluding
these items, the effective rate would have been approximately 36.5% for the fiscal year.

During
fiscal 2003, KV amended its income tax returns previously filed for fiscal years 1999 and
1997. A change in the federal tax law allowed it to utilize a portion of its capital loss
from fiscal years 1999 and 1997 that had been previously disallowed. As a result of this
change, KV recognized an income tax benefit of $607,000 in fiscal 2003. Excluding the
impact of the amended returns, the effective tax rate would have been 38.0% in fiscal
2003. See Note 10 to the Consolidated Financial Statements for a reconciliation of the
effective tax rate.

12

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# Net Income

Net
income was $3.1 million, or $0.68 per diluted share, in fiscal 2005 compared with $3.7
million, or $0.83 per diluted share, in fiscal 2004 and $2.2 million, or $0.49 per diluted
share, in fiscal 2003. Fiscal 2005 included the impairment/restructuring charge associated
with the relocation of the wire operations, which was $2.1 million pre-tax or
approximately $1.3 million after-tax, or $0.29 per diluted share. Excluding this unusual
item, improved sales volumes, along with better leveraging of selling and administrative
expenses, were the primary contributors to the net income improvement in both fiscal 2005
and 2004.

# Liquidity and Capital
Resources

Cash Flows Provided by
Operating Activities

Net
cash provided by operating activities in fiscal 2005 was $8.1 million compared to $4.9
million in fiscal 2004 and $.5 million in fiscal 2003. KV has successfully leveraged its
account receivable balance outstanding in fiscal 2005, along with minimizing the increase
in its inventory levels over the previous year. Management believes that it can further
reduce the inventory levels in future years as it fully consolidates wire production into
its Grand Rapids facility.

The
lower cash flow from operating activities in fiscal 2003 reflects lower earnings, a
significant contribution to our defined benefit pension plans, and higher inventory levels
needed to support the launch of the new products and the consignment inventory program. In
addition, the payment of the legal settlements during fiscal 2003 also reduced the cash
generated by operating activities.

Cash Flows Used for
Investing Activities

Cash
used for investing activities was $2.4 million in fiscal 2005 compared to $1.2 million in
fiscal 2004 and $3.5 million in fiscal 2003. The capital expenditures in fiscal 2005
represented investment in tooling for various new products including the Proxi line
of office organization tools, the SRS/Polaris adjustable keyboards and the new
undermount slide. In addition, KV invested in the new showrooms in the Merchandise Mart
and certain key pieces of manufacturing equipment. The capital expenditures in fiscal 2004
represented investments in tooling for new products, including certain new custom
precision slides. The fiscal 2003 capital expenditures represented investments in tooling
for new products, including the Hopper and certain precision drawer slides, along
with investment in our web-based customer service application. There were no significant
capital expenditure commitments at July 2, 2005. The cost to complete the items classified
as construction in progress at July 2, 2005 was estimated to be approximately $1.3
million, which will be derived from cash flows from operations or from the revolving
credit facility.

Capital
spending has remained at lower levels for fiscal years 2005, 2004 and 2003, due to the
fact that we believe our investments made in earlier years for the manufacturing process
have been sufficient to meet the anticipated capacity needs for at least the next three to
five years. We believe that capital expenditures will approximate $3.0 million in fiscal
2006, as investments will be focused on bringing new products and product enhancements to
our customers, along with our investment in Asia.

Cash Flows Provided by
(Used for) Financing Activities

Cash
flows utilized for financing activities were $4.9 million in fiscal 2005 compared to $2.4
million in fiscal 2004 and compared to cash provided by financing activities of $1.1
million in fiscal 2003. Each of the fiscal years included the ongoing costs of the KV
dividend program, which approximates $2.8 million annually. Fiscal 2005 included $2.0
million in repayments on the revolving credit facility, while in fiscal 2004 and fiscal
2003, KV borrowed $.5 million and $4.0 million, respectively, under the revolving credit
facility.

KV
has a stock repurchase program, under which it purchased no shares in fiscal 2005 and
fiscal 2004 and 2,280 shares during fiscal 2003 with the price per share ranging from
approximately $9 to $11. At July 2, 2005, KV is authorized to repurchase an additional
272,202 shares.

KV
has a $35 million three-year unsecured revolving credit facility that would have matured
on November 1, 2006. On May 31, 2005, KV signed the First Amendment to the credit facility
with Comerica Bank. The First Amendment extends the revolving credit maturity date to
November 1, 2008 and revised certain of the financial covenants.

13

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Interest
rates on outstanding loans under the revolving credit facility are either based on the
London Interbank Offering Rate (LIBOR), plus a negotiated spread over LIBOR, or at the
U.S. prime rate. The agreement requires the Company to pay a non-use fee on amounts not
outstanding under the credit facility based on a ratio of the Companys adjusted
total debt (funded debt less cash and cash equivalents) to EBITDA (earnings before
interest, income taxes, depreciation and amortization). In addition, KV has an interest
rate swap agreement, which expires on June 1, 2006, in order to fix the interest rate on
$20 million of borrowings under the revolving credit facility. The swap agreement fixed
the rate at 6.25% plus our credit spread on the revolving credit agreement.

At
July 2, 2005, KV was in compliance with all of the covenants of the revolving credit
agreement.

The
outstanding debt at July 2, 2005 was $22.5 million, compared to $24.5 million at the end
of fiscal 2004. The debt to total capital ratio improved to 37.2% at July 2, 2005, from
40.0% at July 3, 2004. Note that KV defines total capital as the sum of long-term debt
plus total stockholders equity. Management continues to manage KVs debt levels
in an effort to maintain its debt to total capital in a range of 35 to 45%. Anticipated
cash flows from operations and available balances on the revolving credit line are
expected to be adequate to fund working capital, capital expenditures, stock repurchases
and dividend payments in fiscal 2006.

# Legal Contingencies

In
1997, KV was sued by a former employee seeking additional benefits under an executive
retirement plan. This litigation has been dismissed and appealed through various courts.
In January 2005, the Sixth Circuit Court of Appeals denied the plaintiffs appeal of
the dismissal.

The
Canada Customs and Revenue Agency (CCRA) has performed an audit of KVs
sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary results from a
joint review by KV and its customs broker indicate that KV may be liable for certain
customs transactions, however, the amount of any such potential liability is unknown at
this time. KV is defending its position that Knape & Vogt Canada is the importer of
record for all Knape & Vogt goods shipped into Canada and management believes that
based on the information available at this time, any liability owed to the CCRA will not
have a material adverse effect on KVs earnings.

During
the second quarter of fiscal 2005, a competitor filed a suit in the U.S. District Court of
the Central District of California alleging that KV infringes two of the competitors
U.S. patents. The competitor is seeking monetary damages and injunctive relief. KV has
received an opinion from its outside patent counsel that KVs products do not
infringe the competitors patents. KV has answered that it denies any liability and
will vigorously defend the suit.

KV
is also subject to other legal proceedings and claims, which arise in the ordinary course
of business.

In
the opinion of management, based on the information presently known and taking into
account established accruals of approximately $431,000 at July 2, 2005, the ultimate
liability for these matters will not have a material adverse effect on KVs financial
position or the results of its operations.

# Contractual Obligations

As
more fully described in the Notes to the Consolidated Financial Statements, we are
obligated to make future payments under certain debt and lease agreements, and are a party
to other commitments. The following table summarizes these obligations as of July 2, 2005.

14

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|                                   | Payments due by period
|---------------------------------- | ----------------------
|                                   |                       
|
|                                   |                       
|Long-term debt                     |                       
|Capital lease                      |                       
|Operating leases                   |                       
|Interest rate swap agreement       |                       
|Purchase obligations               |                       
|                                   |                       
|Total contractual cash obligations |                       
|                                   |                       

In
addition, we are a party to certain other agreements that contractually and
unconditionally commit us to pay certain amounts in the future. While we believe it is
probable that amounts will be spent in the future under such contracts, the amount and/or
the timing of such future payments will vary depending on certain provisions of the
applicable contract. The agreements to which we are a party that fall into this category
include certain royalty agreements under which we pay a royalty based on the sales volume
of certain products that we manufacture and sell.

Further,
we expect to contribute approximately $600,000 to our defined benefit retirement plans in
fiscal 2006. Cash contributions beyond fiscal 2006 are not included, as the amounts are
uncertain.

# Inflation

Inflation,
excluding the increase in steel discussed in the Gross Margin section of this report, has
not had a significant effect on KV over the past three years, nor is it expected to have a
significant effect in the foreseeable future. KV continuously attempts to minimize the
effect of inflation through cost reductions and improved productivity.

# Recently Issued
Accounting Standards

In
December 2004, the Financial Accounting Standards Board (FASB) issued a
revision of SFAS No. 122(R), Share-Based Payment, which supersedes APB Opinion No.
25. This statement focuses primarily on transactions in which an entity obtains employee
services in exchange for share-based payments. Under SFAS No. 123(R), a public company
generally is required to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award, with such
cost recognized over the applicable vesting period. In addition, SFAS No. 123(R) requires
an entity to provide certain disclosures in order to assist in understanding the nature of
share-based payment transactions and the effects of those transactions on the financial
statements. The provisions of SFAS No. 123(R) require application as of the beginning of
the first fiscal year that begins after June 15, 2005. As such, the Company is required to
adopt the provisions of SFAS No. 123(R) at the beginning of fiscal year 2006. The Company
has not granted such awards over the past three years. If in the future, the Company
should grant any such awards, it will account for such awards in accordance with SFAS No.
123(R).

In
December 2004, the FASB issued Staff Position (FSP) No. 109-1, Application
of FASB Statement No. 109, Accounting for Income Taxes for the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act (the Act) of
2004. This had no impact on the Company for fiscal 2005. The Company has not completed
its assessment of the impact the Act will have on its financial statements in fiscal 2006.

15

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FASB
Staff Position (FSP) No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
(FSP 109-2), provides guidance under FASB Statement No. 109, Accounting for
Income Taxes, with respect to recording the potential impact of the repatriation
provisions of the American Jobs Creation Act of 2004 (the Jobs Act) on
enterprises income tax expense and deferred tax liability. The Jobs Act was enacted
on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the
financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan
for reinvestment or repatriation of foreign earnings for the purposes of applying FASB
Statement No. 109. The Company has not completed an evaluation of the impact of
repatriating funds from its Canadian subsidiary.

In
November 2004, the FASB issued SFAS No. 151, Inventory Cost. This Statement amends
the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (scrap). SFAS No. 151 requires that those items be recognized
as current-period charges. In addition, this Statement requires that the allocation of
fixed production overhead to the costs of conversion be based on the normal capacity of
the production facilities. The provisions of SFAS No. 151 are effective for inventory
costs incurred in fiscal years beginning after June 15, 2005. As such, the Company is
required to adopt these provisions at the beginning of fiscal year 2006. The Company
believes that the impact of SFAS No. 151 will be immaterial to its consolidated
statements.

16

---



# ITEM 7A QUANTITATIVE
AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK

KV
is exposed to market risks, which include changes in the Canadian dollar foreign currency
exchange rate as measured against the U.S. dollar and changes in U.S. interest rates. KV
holds a derivative instrument in the form of an interest rate swap, which is viewed as a
risk management tool and is not used for trading or speculative purposes. The intent of
the interest rate swap is to effectively fix the interest rate on part of the borrowings
under KVs variable rate revolving credit agreement. The derivative was recognized as
a liability on the balance sheet at its fair value of $434,763 at July 2, 2005 and
$1,391,133 at July 3, 2004.

A
discussion of KVs accounting policies for derivative financial instruments is
included in Note 2 of the Notes to Consolidated Financial Statements. Additional
information relating to financial instruments and debt is included in Notes 6 and 7.

The
following table provides information on KVs fixed maturity investments as of July 2,
2005 and July 3, 2004 that are sensitive to changes in interest rates. The table also
presents the corresponding interest rate swap on this debt. Since the interest rate swap
effectively fixes the interest rate on the notional amount of debt, changes in interest
rates have no current effect on the interest expense recorded by KV on the portion of the
debt covered by the interest rate swap.

|Fiscal 2005:                                                    |        |              
|--------------------------------------------------------------- | ------ | -------------
|Liability                                                       | Amount | Maturity Date
|Variable rate revolving credit agreement                        |        | $22,500,000  
|First $20,000,000 at an interest rate of 3.3375% (90 day LIBOR) |       
|plus weighted average credit spread of .85%                     |       
|Next $2,500,000 at an interest rate of 3.34% (1 month LIBOR)    |       
|plus weighted average credit spread of .85%;                    |       
|Amounts in excess of $22,500,000 at the prime rate,             |       
|Currently 6.25%                                                 |       
|                                                                |       
|Interest Rate Swaps                                             |       
|Notional amount                                                 |        | $20,000,000  
|Pay fixed/Receive variable                                      |       
|At 3 Month LIBOR - 3.33%                                        |       
|Pay fixed interest rate - 6.25%                                 |       
|Fair value - liability                                          |        | $     434,763
|                                                                |       
|Fiscal 2004:                                                    |       
|Liability                                                       |       
|Variable rate revolving credit agreement                        |        | $24,500,000  
|First $20,000,000 at an interest rate of 1.315% (90 day LIBOR)  |       
|plus weighted average credit spread of .85%                     |       
|Next $4,500,000 at an interest rate of 1.369% (1 month LIBOR)   |       
|plus weighted average credit spread of .85%;                    |       
|Amounts in excess of $24,500,000 at the prime rate,             |       
|Currently 4.0%                                                  |       
|                                                                |       
|Interest Rate Swaps                                             |       
|Notional amount                                                 |        | $20,000,000  
|Pay fixed/Receive variable                                      |       
|At 3 Month LIBOR - 1.31%                                        |       
|Pay fixed interest rate - 6.25%                                 |       
|Fair value - liability                                          |        | $  1,391,133 

KV
has a sales office located in Canada. Sales are typically denominated in Canadian dollars,
thereby creating exposures to changes in exchange rates. The changes in the Canadian/U.S.
exchange rate may positively or negatively affect KVs sales, gross profits and
retained earnings. KV attempts to minimize currency exposure risk through working capital
management. KV does not hedge its exposure to translation gains and losses relating to
foreign currency net asset exposures.

17

---



# ITEM 8 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Immediately
following are the consolidated balance sheets of KV and its subsidiaries as of July 2,
2005 and July 3, 2004, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three years in the period ended
July 2, 2005, the notes thereto, and the report of independent registered public
accounting firm.

# Knape & Vogt
Manufacturing Company and SubsidiariesConsolidated Statements of Operations

|                                    
|------------------------------------
|
|                                    
|Net Sales                           
|                                    
|Cost of Sales                       
|                                    
|Gross Profit                        
|                                    
|Expenses                            
|Selling                             
|Administrative and general          
|Impairment and restructure          
|                                    
|Total Expenses                      
|                                    
|Operating Income                    
|                                    
|Other Expenses (Income)             
|Interest                            
|Other, net                          
|                                    
|Total Other Expenses                
|                                    
|Income Before Income Taxes          
|                                    
|Income Taxes                        
|                                    
|Net Income                          
|                                    
|Basic and Diluted Earnings Per Share
|                                    
|Weighted-Average Shares Outstanding 
|                                    
|Dividends Per Share                 
|Common stock                        
|Class B common stock                
|                                    

See accompanying
notes to consolidated financial statements.

18

---



# Knape & Vogt Manufacturing
Company and SubsidiariesConsolidated Balance Sheets

|                                                              
|--------------------------------------------------------------
|
|                                                              
|Assets                                                        
|                                                              
|Current Assets                                                
|Cash and equivalents                                          
|Accounts receivable, less allowances of $533,000 and $673,000,
|respectively                                                  
|Inventories, including inventory on consignment at customer   
|locations of $3,486,000 and $3,292,000 respectively           
|Prepaid expenses and other current assets                     
|Assets held for sale                                          
|                                                              
|Total Current Assets                                          
|                                                              
|Property and Equipment                                        
|Land and improvements                                         
|Buildings                                                     
|Machinery and equipment                                       
|Construction in progress                                      
|                                                              
|                                                              
|Less accumulated depreciation                                 
|                                                              
|Net Property and Equipment                                    
|                                                              
|Goodwill, net of accumulated amortization of $1,099,000       
|                                                              
|Prepaid Pension Cost                                          
|                                                              
|Other Assets                                                  
|                                                              
|                                                              
|                                                              

See accompanying
notes to consolidated financial statements.

19

---



# Knape & Vogt
Manufacturing Company and SubsidiariesConsolidated Balance Sheets

|                                                               
|---------------------------------------------------------------
|
|                                                               
|Liabilities and Stockholders' Equity                           
|                                                               
|Current Liabilities                                            
|Accounts payable                                               
|Accruals:                                                      
|Income taxes                                                   
|Accrued compensation                                           
|Accrued customer rebates and cooperative advertising           
|Other                                                          
|                                                               
|Total Current Liabilities                                      
|                                                               
|Other Retirement Benefits                                      
|                                                               
|Long-Term Debt and Capital Leases                              
|                                                               
|Deferred Income Taxes                                          
|                                                               
|Interest Rate Swap Agreement and Other Long-Term Liabilities   
|                                                               
|Total Liabilities                                              
|                                                               
|Stockholders' Equity                                           
|Stock:                                                         
|Common, $2 par - 6,000,000 shares authorized; 2,482,663 and    
|2,331,860 issued and outstanding                               
|Class B common, $2 par - 4,000,000 shares authorized; 2,027,842
|and 2,184,489 issued and outstanding                           
|Preferred - 2,000,000 shares authorized and unissued           
|Additional paid-in capital                                     
|Unearned stock grant                                           
|Accumulated other comprehensive loss:                          
|Derivative instrument                                          
|Minimum SERP adjustment                                        
|Minimum pension adjustment                                     
|Foreign currency translation adjustment                        
|                                                               
|Total accumulated other comprehensive loss                     
|Retained earnings                                              
|                                                               
|Total Stockholders' Equity                                     
|                                                               
|                                                               
|                                                               

See accompanying
notes to consolidated financial statements.

20

---



# Knape & Vogt Manufacturing
Company and Subsidiaries Consolidated
Statements of Stockholders Equity

|                                          |  |  |   |           |   |  
|----------------------------------------- |  |  | - | --------- | - | -
|
|                                          |  |  |   |           |   |  
|Balance, June 29, 2002                    |  |  | $ | 9,034,304 |   | $
|Comprehensive income:                     |  | 
|Net income                                |  |  |   | -         |   |  
|Foreign currency translation              |  |  |   | -         |   |  
|adjustment                                |  | 
|Minimum SERP adjustment, net of           |  | 
|deferred taxes of $152,000                |  |  |   | -         |   |  
|Minimum pension adjustment, net of        |  | 
|deferred taxes of $302,000                |  |  |   | -         |   |  
|Loss on derivative instrument, net        |  | 
|of deferred taxes of $333,000             |  |  |   | -         |   |  
|                                          |  |  |   |          
|Other comprehensive loss                  |  |  |   | -         |   |  
|                                          |  |  |   |           |   |  
|Comprehensive income                      |  |  |   | -         |   |  
|                                          |  |  |   |           |   |  
|Cash dividends                            |  |  |   | -         |   |  
|Restricted stock forfeited (50 shares)    |  |  |   | (100      | ) |  
|Restricted stock issued (813 shares)      |  |  |   | 1,626     |   |  
|Repurchase and retirement of  shares of   |  | 
|common stock (2,280 shares)               |  |  |   | (4,560    | ) |  
|                                          |  |  |   |           |   |  
|Balance, June 28, 2003                    |  |  |   | 9,031,270 |   |  
|                                          |  | 
|Comprehensive income:                     |  | 
|Net income                                |  |  |   | -         |   |  
|Foreign currency translation              |  |  |   | -         |   |  
|adjustment                                |  | 
|Minimum SERP adjustment, net of           |  | 
|deferred taxes of $103,000                |  |  |   | -         |   |  
|Minimum pension adjustment, net of        |  | 
|deferred taxes of $157,000                |  |  |   | -         |   |  
|Gain on derivative instrument, net        |  | 
|of deferred taxes of $407,000             |  |  |   | -         |   |  
|                                          |  |  |   |          
|Other comprehensive income                |  |  |   | -         |   |  
|                                          |  |  |   |           |   |  
|Comprehensive income                      |  |  |   | -         |   |  
|                                          |  |  |   |           |   |  
|Cash dividends                            |  |  |   | -         |   |  
|Restricted stock issued (714 shares)      |  |  |   | 1,428     |   |  
|                                          |  |  |   |           |   |  
|Balance, July 3, 2004                     |  |  |   | 9,032,698 |   |  
|                                          |  | 
|Comprehensive income:                     |  | 
|Net income                                |  |  |   | -         |   |  
|Foreign currency translation              |  |  |   | -         |   |  
|adjustment                                |  | 
|Minimum SERP adjustment, net of           |  | 
|deferred taxes of $76,000                 |  |  |   | -         |   |  
|Minimum pension adjustment, net of        |  | 
|deferred taxes of $157,000                |  |  |   | -         |   |  
|Gain on derivative instrument, net        |  | 
|of deferred taxes of $335,000             |  |  |   | -         |   |  
|                                          |  |  |   |          
|Other comprehensive income                |  |  |   | -         |   |  
|                                          |  |  |   |           |   |  
|Comprehensive income                      |  |  |   | -         |   |  
|                                          |  |  |   |           |   |  
|Cash dividends                            |  |  |   | -         |   |  
|Restricted stock forfeited (6,600 shares) |  |  |   | (13,200   | ) |  
|Restricted stock issued (756 shares)      |  |  |   | 1,512     |   |  
|                                          |  |  |   |           |   |  
|Balance, July 2, 2005                     |  |  | $ | 9,021,010 |   | $
|                                          |  |  |   |           |   |  

See accompanying
notes to consolidated financial statements.

21

---



# Knape & Vogt
Manufacturing Company and SubsidiariesConsolidated Statements of Cash Flows

|                                                            | 
|----------------------------------------------------------- | 
|
|                                                            | 
|Operating Activities                                        | 
|Net income                                                  | 
|Adjustments to reconcile net income to net cash provided by | 
|operating activities:                                       | 
|Depreciation of property and equipment                      | 
|Amortization of other assets                                | 
|Deferred income taxes                                       | 
|Increase (decrease) in supplemental retirement benefits     | 
|(Increase) decrease in prepaid pension cost                 | 
|Impairment loss                                             | 
|Loss (gain) on disposal of property and equipment           | 
|Other                                                       | 
|Changes in operating assets and liabilities:                | 
|Accounts receivable                                         | 
|Inventories                                                 | 
|Other current assets                                        | 
|Accounts payable                                            | 
|Accruals                                                    | 
|                                                            | 
|Net cash provided by operating activities                   | 
|                                                            | 
|Investing Activities                                        | 
|Additions to property and equipment                         | 
|Proceeds from sales of property and equipment               | 
|Other, net                                                  | 
|                                                            | 
|Net cash used for investing activities                      | 
|                                                            | 
|Financing Activities                                        | 
|Dividends paid                                              | 
|Principal payments on capital lease obligations             | 
|Borrowings/(repayments) on long-term debt                   | 
|Repurchase and retirement of common stock                   | 
|                                                            | 
|Net cash provided by (used for) financing activities        | 
|                                                            | 
|Effect of Exchange Rate Changes on Cash                     | 
|                                                            | 
|Net Increase (Decrease) in Cash and Equivalents             | 
|Cash and equivalents, beginning of year                     | 
|                                                            | 
|Cash and equivalents, end of year                           | 
|                                                            | 
|Supplemental Information:                                   | 
|Interest paid                                               | 
|Income taxes paid                                           | 
|                                                            | 

See accompanying
notes to consolidated financial statements.

22

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

# NOTE 1. Nature of
Operations.

Knape
& Vogt Manufacturing Company and its wholly owned subsidiaries (the Company) design,
manufacture and distribute kitchen and bath storage solutions and office products for
original equipment manufacturers, specialty distributors, hardware chains and major home
centers. During fiscal 2004, the Company further defined its operating segments by the
major markets that it serves. Products are sold worldwide through the Companys own
sales personnel and through independent sales representatives. The Company is
headquartered in Grand Rapids, Michigan.

# NOTE 2. Summary of
Significant Accounting Policies

Principles
of Consolidation

The
consolidated financial statements have been prepared by the Company in accordance with
accounting principles generally accepted in the United States of America and include the
accounts of Knape & Vogt Manufacturing Company and its wholly owned foreign
subsidiary. All material intercompany balances, transactions and stockholdings have been
eliminated in consolidation.

The
Company utilizes a 52- or 53-week fiscal year, which ends on the Saturday nearest the end
of June. The fiscal years ended July 2, 2005 and June 28, 2003 contained 52 weeks and the
fiscal year ended July 3, 2004 contained 53 weeks.

Revenue
Recognition

The
Company records revenue when title to the product and risk of ownership passes to the
buyer. Sales are shown net of returns, discounts and any other form of sales incentive,
including cooperative advertising, rebates and merchandising displays. In certain
circumstances, the Company provides buyback programs and markdown allowances to its
customers. These amounts are fixed at the start of the contract period with the customer
and accounted for in accordance with Statement of Position No. 93-7, Reporting on
Advertising Costs and Emerging Issues Task Force No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer. The cost of these programs are either
expensed at the time of the initial shipment of the goods or are expensed on a prorated
basis over the sales of the contract, if the Company has a written commitment from the
customer.

Concentration
of Credit Risk

The
Company performs ongoing credit evaluations and maintains reserves for potential credit
losses.

Shipping
and Handling Costs

Shipping and
handling costs that are charged to and reimbursed by the customer are recognized as
revenue, while the related expenses incurred by the Company are recorded as cost of sales
in the consolidated statements of operations.

Foreign
Currency

The
accounts of the foreign subsidiary are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52. Current assets and
liabilities are translated at year-end exchange rates, while long-term assets and
liabilities are translated at historical month-end rates. Income and expense accounts are
translated at average exchange rates in effect during the year. Translation adjustments
resulting from fluctuations in the exchange rates are recorded in accumulated other
comprehensive income, a separate component of stockholders equity. Gains and losses
from foreign currency transactions, such as those resulting from the settlement of foreign
receivables or payables are included in the consolidated statements of operations. These
foreign currency exchange net gains were $23,423 in fiscal 2005, $149,398 in fiscal 2004
and $6,432 in fiscal 2003.

23

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

Fair
Value Disclosures of Financial Instruments

Financial
instruments include cash and equivalents, accounts receivable, accounts payable, long-term
debt and an interest rate swap agreement. The carrying amounts of cash and equivalents,
accounts receivable, and accounts payable approximate fair value at July 2, 2005 and July
3, 2004, because of the short-term nature of these financial instruments. The estimated
carrying value of long-term debt approximates its fair value at July 2, 2005 and July 3,
2004 due to variable interest rates associated with the revolving line of credit. The
interest rate swap is valued based on a quoted market price.

Derivative
Financial Instruments

The
Company uses an interest rate swap agreement to modify a portion of the variable rate
revolving line of credit to a fixed rate obligation, thereby reducing the exposure to
market rate fluctuations. The interest rate swap agreement is designated as a hedge, and
effectiveness is determined by matching the principal balance and terms with that specific
obligation. Amounts currently due to or from interest rate swap counter parties are
recorded in interest expense in the period in which they accrue. The derivative was
recognized as a liability on the balance sheet at its fair value of $434,763 at July 2,
2005 and $1,391,133 at July 2, 2004.

Cash
and Equivalents

Cash and
equivalents consist of cash and highly liquid investments with an original maturity of
three months or less at the date of purchase.

Inventories

Inventories
are stated at the lower of FIFO (first-in, first-out) cost or market. The Company also has
inventory provided to certain of its major customers on a consignment basis. When the
Company receives notice that the customer has utilized the consigned inventory, it
invoices the customer for the inventory and recognizes revenue on the sale of that
inventory.

Property,
Equipment and Depreciation

Property
and equipment are stated at cost and depreciated, for financial reporting purposes, using
the straight-line method over the estimated useful lives of the assets. For income tax
purposes, accelerated depreciation methods and shorter useful lives are used. Management
estimates that the cost to complete the items classified in construction in progress at
July 2, 2005 was approximately $1.3 million. Estimated depreciable lives are as follows:
land and improvements, 3 to 20 years; buildings, 3 to 40 years; machinery and equipment, 3
to 20 years.

Leased
Property Under Capital Leases

Property
under capital leases is amortized over the shorter of the lives of the respective leases
or the estimated useful lives of the assets. Amortization of capital leases for the years
ending July 2, 2005, July 3, 2004 and June 28, 2003 were $15,319, $15,319 and $7,660,
respectively.

Stock
Based Compensation

The
Company accounts for its stock option plans in accordance with APB Opinion 25,
Accounting for Stock Issued to Employees. Since the exercise price of the
Companys employee stock options equals or exceeds the market price of the underlying
stock on the date of the grant, no compensation cost is recognized under APB Opinion 25.
In accordance with SFAS No. 123, Accounting for Stock-Based Compensation, the
Company is required to provide pro forma information regarding net income and earnings per
share as if compensation costs for the Companys stock option plan had been
determined using a fair value based estimate. Had SFAS No. 123 been adopted, there would
be no change in either net income or earnings per share as no options have been granted to
employees during the past three fiscal years.

24

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

Goodwill
and Intangible Assets

In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company is required to test the carrying value of goodwill for impairment at the reporting
unit level annually or more frequently if an event occurs. Goodwill represents the excess
of the purchase price over the fair value of net identifiable intangible assets. The
recorded goodwill primarily relates to the acquisition of Idea Industries.

Other
intangibles consist primarily of trademarks, brand names and patents that are being
amortized using the straight-line method over periods up to 15 years. Other intangibles
were $172,202, net of accumulated amortization of $183,832 as of July 2, 2005 and
$189,581, net of accumulated amortization of $119,103 as of July 3, 2004.

Self-Insurance

The
Company is partially self-insured for workers compensation and certain employee
health benefits. The Company is self-insured for environmental issues. The Company
purchases stop-loss coverage in order to limit its exposure to any significant levels of
workers compensation or employee health benefit claims. Losses are recorded when
reported and consist of individual case elements. Insurance reserves also include a
provision for incurred but not reported losses determined using certain actuarial
assumptions followed in the insurance industry and the Companys own historical
experience.

Income
Taxes

Deferred
income taxes are recognized for all temporary differences between tax and financial
reporting, and are measured using the enacted tax rates expected to apply to the taxable
income in the years in which those temporary differences are expected to reverse.

Advertising

The
Company offers cooperative advertising to certain customers. The advertising costs are
recorded in accordance with Statement of Position No. 93-7, Reporting on Advertising
Costs and Emerging Issues Task Force No. 01-9, Accounting for Consideration
Given by a Vendor to a Customer. The cost of these programs is expensed at the same
time that the corresponding sales are recognized and are recorded as a reduction of gross
sales. Other advertising costs are included in selling, general, and administrative
expenses. Advertising expense, including cooperative advertising, was $1,300,000 in 2005,
$1,305,000 in 2004 and $976,000 in 2003.

Earnings
Per Share

Basic
earnings per share (EPS) is computed by dividing net income by the weighted-average number
of common shares outstanding in each year. Diluted EPS is computed by dividing net income
by the weighted-average number of common shares outstanding, plus all shares that would
have been outstanding if every potentially dilutive common share had been issued. The
numerators and denominators used in the calculations of basic and diluted EPS for each of
the last three years are as follows:

|                                 | 2005 | 2004       | 2003
|-------------------------------- | ---- | ---------- | ----
|                                 |     
|Numerators:                      |      |            |     
|Numerator  for  both  basic  and |     
|diluted EPS, net income          |      | $3,080,272 |     
|                                 |     
|Denominators:                    |     
|Denominator  for both  basic and |     
|diluted  EPS, weighted-average   |     
|common shares outstanding        |      | 4,514,243  |     
|                                 |     

25

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
following exercisable stock options were not included in the computation of diluted EPS
because the option prices were greater than average quarterly market prices.

|               | 2005 | 2004  | 2003
|-------------- | ---- | ----- | ----
|               |      |       |     
|Exercise Price |     
|$13.64         |      | 6,050 |     
|$14.09         |      | 7,700 |     
|$16.74         |      | -     |     
|$18.18         |      | -     |     
|$18.41         |      | -     |     
|$18.48         |      | -     |     
|$26.54         |      | -     |     

Comprehensive
Income

Comprehensive income
represents net income and other revenues, expenses, gains and losses that are excluded
from net income and recognized directly as a component of stockholders equity.

New
Accounting Standards

In
December 2004, the Financial Accounting Standards Board (FASB) issued a
revision of SFAS No. 123(R), Share-Based Payment, which supersedes APB Opinion No.
25. This statement focuses primarily on transactions in which an entity obtains employee
services in exchange for share-based payments. Under SFAS No. 123(R), a public company
generally is required to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award, with such
cost recognized over the applicable vesting period. In addition, SFAS No. 123(R) requires
an entity to provide certain disclosures in order to assist in understanding the nature of
share-based payment transactions and the effects of those transactions on the financial
statements. The provisions of SFAS No. 123(R) require application as of the beginning of
the first fiscal year that begins after June 15, 2005. As such, the Company is required to
adopt the provisions of SFAS No. 123(R) at the beginning of fiscal year 2006. The Company
has not granted such awards over the past three years. If in the future, the Company
should grant any such awards, it will account for such awards in accordance with SFAS No.
123(R).

In
December 2004, the FASB issued Staff Position (FSP) No. 109-1, Application
of FASB Statement No. 109, Accounting for Income Taxes for the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act (the Act) of
2004. This had no impact on the Company for fiscal 2005. The Company has not completed
its assessment of the impact of the Act will have on its financial statements in fiscal
2006.

FASB
Staff Position (FSP) No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
(FSP 109-2), provides guidance under FASB Statement No. 109, Accounting for
Income Taxes, with respect to recording the potential impact of the repatriation
provisions of the American Jobs Creation Act of 2004 (the Jobs Act) on
enterprises income tax expense and deferred tax liability. The Jobs Act was enacted
on October 22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the
financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan
for reinvestment or repatriation of foreign earnings for the purposes of applying FASB
Statement No. 109. The Company has evaluated the impact of repatriating funds from its
Canadian subsidiary and determined that the impact to its tax expense and deferred tax
liability will be immaterial. A formal plan has not been approved as of the date of this
report to repatriate funds back to the United States, however the Company anticipates that
this action will occur in fiscal 2006.

In
November 2004, the FASB issued SFAS No. 151, Inventory Cost. This Statement amends
the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing,
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (scrap). SFAS No. 151 requires that those items be recognized
as current-period charges. In addition, this Statement requires that the allocation of
fixed production overhead to the costs of conversion be based on the normal capacity of
the production facilities. The provisions of SFAS No. 151 are effective for inventory
costs incurred in fiscal years beginning after June 15, 2005. As such, the Company is
required to adopt these provisions at the beginning of fiscal year 2006. The Company
believes that the impact of SFAS No. 151 will be immaterial to its consolidated
statements.

26

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

Use
of Estimates in Preparation of Financial Statements

The preparation
of financial statements in accordance with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.

Reclassifications

Certain
prior year information has been reclassified to conform to the current year presentation.

# NOTE 3.
Impairment/Severance

The
following presents a summary of pre-tax impairment/restructuring activities, by category
for the three years ended July 2, 2005.

|                            | 2005 | 2004 | 2003
|--------------------------- | ---- | ---- | ----
|                            |      |      |     
|Severance & stay on bonuses |      |      | $   
|Facility exit costs & other |      |      |     
|Asset impairment            |      |      |     
|                            |      |      |     
|Total                       |      |      | $   
|                            |      |      |     

During
fiscal 2005, the Company recognized asset impairment charges and accelerated depreciation
of $419,204 pre-tax on certain manufacturing equipment. The asset impairment component of
$115,088 was recorded in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The accelerated depreciation of $304,116 was recorded
in cost of goods sold as it is excluded from SFAS No. 144. The manufacturing equipment had
been utilized for backup production of precision drawer slide products. Those products are
now being partially sourced from overseas rather than manufactured in house, so the extra
capacity is no longer required. Some of the equipment will be abandoned and the useful
life was adjusted accordingly for depreciation purposes. The equipment that will be held
and used or sold was written-down to its estimated fair values as determined by the
Companys management based on estimated prices of similar assets or proceeds from
sale, respectively. The equipment that will be sold has been classified as assets held for
sale on the balance sheet.

In
January 2005, the Board of Directors approved a restructuring plan to close its Muncie,
Indiana facility and relocate its operations into existing available space in the Grand
Rapids, Michigan facility. In accordance with SFAS No. 144, the Company recorded pre-tax
impairment charges of $1,663,359 in fiscal 2005, consisting of the write down of the
long-lived assets; including real estate and manufacturing equipment located in Muncie
facility, to the lower of their carrying value or their estimated fair values, less the
disposition costs. Fair value estimates were determined by the Companys management,
with the assistance of independent appraisers, and were based on estimated proceeds from
sale. The fair value of the real estate was determined to be $1.0 million and the
equipment was adjusted to a fair value of $220,000. The closure of the facility and
relocation of the operations was completed in June 2005.

The
Company incurred certain qualifying exit costs in connection with the closure of the
Muncie facility, including severance and the relocation of certain equipment and
inventory. The severance/stay-on bonus costs and the facility exit and other costs of
$491,574 were expensed as they were incurred. All of the charges were recorded in the
Manufacturing division of the Company.

27

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

During
2003, the Company recorded $271,325 pre-tax of severance costs primarily related to the
resignation of two of its executive officers in August 2002.

The
following summarizes the restructuring accrual for the fiscal year ended July 2, 2005.
Fiscal years ended July 3, 2004 and June 28, 2003 did not have any accrual activity.
Facility exit costs associated with the movement of equipment and inventory, as well as
facility preparation and training related to the relocation, are recognized as incurred
and are not included in the ending restructuring accrual balance.

|                              | Severance &  Stay on bonuses | Facility exit Costs & other | Total
|----------------------------- | ---------------------------- | --------------------------- | -----
|                              |                              |                             |      
|Accrual balance, July 3, 2004 |                              |                             | $    
|Restructuring charges         |                              |                             |      
|Cash payments                 |                              |                             |      
|                              |                              |                             |      
|Accrual balance, July 2, 2005 |                              |                             | $    
|                              |                              |                             |      

# NOTE 4. Inventories

Inventories
are valued at the lower of FIFO (first-in, first-out) cost or market. Inventories are
summarized as follows:

|                  | July 2, 2005 | July 3, 2004
|----------------- | ------------ | ------------
|                  |              |             
|Finished products |              |             
|Consignment       |              |             
|Work in process   |              |             
|Raw materials     |              |             
|                  |              |             
|                  |              |             
|                  |              |             

# NOTE 5. Warranty

The
Company provides a limited lifetime warranty on most products sold. Depending on the
product, the lifetime warranty is generally defined as a range of three to fifteen years.
The Company does not sell or otherwise issue warranties or warranty extensions as stand
alone products. The warranty provides replacement of the product as the resolution for any
warranty claims. Reserves have been established for the various costs associated with the
Companys warranty program. General warranty reserves are based on historical claims
experience and other currently available information and are periodically adjusted for
business levels and other factors. Specific reserves are established if an issue is
identified with the amounts for such reserves based on the estimated cost to correct the
problem. The actual warranty expense could differ from the estimates made by the Company
based on product performance. The following table presents the changes in the
Companys product warranty liability:

|                                          | July 2, 2005 | July 3, 2004 | June 23, 2003
|----------------------------------------- | ------------ | ------------ | -------------
|                                          |              |              |              
|Accrued  warranty  costs at the beginning |              |              |              
|of the year                               |              |              | $            
|Payments made for warranty costs          |              |              |              
|Accrual for product warranty              |              |              |              
|                                          |              |              |              
|Accrued  warranty costs at the end of the |              |             
|year                                      |              |              | $            
|                                          |              |              |              

28

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

# NOTE 6. Long-Term Debt

Long-term
debt obligations are summarized as follows:

|                                       | July 2, 2005 | July 3, 2004
|-------------------------------------- | ------------ | ------------
|                                       |              |             
|Revolving credit agreement             |              |             
|Capital lease obligations              |              |             
|Less: Current portion of capital lease |              |             
|obligations                            |              |             
|                                       |              |             
|                                       |              |             
|                                       |              |             

The
Company has a $35 million three-year unsecured revolving credit facility that would have
matured on November 1, 2006. On May 31, 2005, the Company signed the First Amendment to
the credit facility with Comerica Bank. The First Amendment extends the revolving credit
maturity date to November 1, 2008 and revised certain of the financial covenants.

Interest
rates on outstanding loans under the revolving credit facility are either based on the
London Interbank Offering Rate (LIBOR), plus a negotiated spread over LIBOR, or at the
U.S. prime rate. The agreement requires the Company to pay a non-use fee on amounts not
outstanding under the credit facility based on a ratio of the Companys adjusted
total debt (funded debt less cash and cash equivalents) to EBITDA (earnings before
interest, income taxes, depreciation and amortization).

At
July 2, 2005, there was a $22,500,000 balance outstanding under this agreement. The
interest rate on the first $20,000,000 of the outstanding balance was 3.3375% plus an
additional 85 basis points credit spread. The interest rate is adjusted to market rates at
the end of each interest period and is based on the 90 day LIBOR rate. The interest rate
on the remaining balance of $2,500,000 was 3.34%, which was the 30-day LIBOR rate, plus an
additional 85 basis points credit spread. The agreement requires the Company to pay a
non-use fee on amounts not outstanding under the credit facility. At July 2, 2005, the
non-use fee was .15%. Both the interest rate and the non-use fees on this agreement
fluctuate according to the ratio of the Companys adjusted total debt (funded debt
less cash and cash equivalents) to EBITDA (earnings before interest, income taxes,
depreciation and amortization). Compensating balances are not required by this agreement.
The Company is required under this agreement to maintain certain financial ratios and, at
July 2, 2005, was in compliance with these covenants.

# NOTE 7. Derivative
Financial Instruments

The
Company has entered into an interest rate swap agreement to modify a portion of the
variable rate revolving line of credit to a fixed rate obligation, thereby reducing the
exposure to market rate fluctuations. The interest rate swap agreement is designated as a
hedge, and effectiveness is determined by matching the principal balance and terms with
that specific obligation. Amounts currently due to or from interest-rate-swap
counter-party are recorded in interest expense in the period in which they accrue. The
derivative, which has a notional amount of $20,000,000, was recognized as a liability on
the balance sheet at its fair value of $434,763 at July 2, 2005 and $1,391,133 at July 3,
2004. Under this agreement, the Company pays the counterparty interest at a fixed rate of
6.25%, and the counterparty pays the Company interest at a variable rate equal to LIBOR.
The LIBOR rate on this agreement was 3.33% at July 2, 2005.

Neither
the Company nor the counterparty, which is a major U.S. bank, is required to collateralize
its obligation under the swap. The Company is exposed to loss if the counterparty should
default. At July 2, 2005, the Company had no exposure to credit loss on the interest rate
swap. The Company does not believe that any reasonably likely change in interest rates
would have a material adverse effect on the financial position, results of operations or
cash flows of the Company.

29

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
gain/(loss) recognized in other comprehensive income on the interest rate swap is made up
of the following components:

|                      | July 2, 2005 | July 3, 2004 | June 28, 2003
|--------------------- | ------------ | ------------ | -------------
|                      |              |              |              
|Change in fair value  |              |              |              
|of interest rate swap |              |              | $            
|Settlement to         |              |             
|interest expense      |              |              |              
|                      |              |             
|Other comprehensive   |              |             
|income (loss)         |              |              | $            

# NOTE 8. Lease Commitments

The
Company leases certain real property and equipment under agreements which expire on
various dates. Future minimum lease payments under operating and capital leases that have
initial or remaining noncancelable lease terms in excess of one year are summarized as
follows:

|Fiscal Year                               | Operating | Capital
|----------------------------------------- | --------- | -------
|                                          |           |        
|2006                                      |           |        
|2007                                      |           |        
|2008                                      |           |        
|2009                                      |           |        
|2010 and thereafter                       |           |        
|                                          |           |        
|Total minimum payments                    |           |        
|Less - interest on capital leases         |           |        
|                                          |           |        
|Total principal payable on capital leases |           |        
|(included in Note 6)                      |           |        
|                                          |           |        

Rent
expense under all operating leases was approximately $1,194,000, $1,273,000 and $1,017,000
in fiscal 2005, 2004 and 2003, respectively.

# NOTE 9. Retirement Plans

The
Company has several noncontributory defined benefit pension plans and defined contribution
plans covering substantially all of its employees. The defined benefit plans provide
benefits based on the participants years of service. The Companys funding
policy for defined benefit plans is to make annual contributions, which equal or exceed
regulatory requirements. The pension and profit-sharing plans at July 2, 2005 and July 3,
2004 held a combined total of 284,637 shares of the Companys Class B common stock.

The
Company also has a nonqualified supplemental retirement program (SERP) for
designated officers of the Company, which includes death and disability benefits. The plan
is funded from the general assets of the Company.

The
postretirement health-care plan covers substantially all employees. The plan is unfunded
and contributory. The plan was capped in fiscal 2002 to limit the amount that the Company
would pay toward the of health-care premiums for retirees.

30

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
Company uses a June 30 measurement date for the majority of its plans. The following
provides a reconciliation of benefit obligations, plan assets and funded status of the
Companys noncontributory pension plans, SERP and postretirement plans:

|                                | Pension Benefits | SERP Benefits | PostretirementHealth-Care Benefits
|------------------------------- | ---------------- | ------------- | ----------------------------------
|                                |                  |               |                                   
|                                |                  |               |                                   
|Change in benefit obligations   |                  |               |                                   
|Benefit obligations at          |                  |              
|beginning of year               |                  |               | $                                 
|Service cost                    |                  |               |                                   
|Interest cost                   |                  |               |                                   
|Actuarial (gains)/losses        |                  |               |                                   
|Benefits paid                   |                  |               |                                   
|Exchange rate                   |                  |               |                                   
|                                |                  |               |                                   
|Benefit obligations at end of   |                  |              
|year                            |                  |               | $                                 
|                                |                  |               |                                   
|Change in plan assets           |                  |              
|Fair value of plan assets at    |                  |              
|beginning of year               |                  |               | $                                 
|Actual return on plan assets    |                  |               |                                   
|Employer contributions          |                  |               |                                   
|Benefits paid                   |                  |               |                                   
|Exchange rate and other         |                  |               |                                   
|                                |                  |               |                                   
|Fair value of plan assets at    |                  |              
|end of year                     |                  |               | $                                 
|                                |                  |               |                                   
|Funded status                   |                  |               | $                                 
|Unrecognized transition amount  |                  |               |                                   
|Unrecognized net actuarial loss |                  |               |                                   
|Unrecognized prior service cost |                  |              
|                                |                  |               |                                   
|                                |                  |               |                                   
|Net amount recognized           |                  |               | $                                 
|                                |                  |               |                                   
|Amounts recognized in the       |                  |              
|consolidated balance sheets     |                  |              
|consist of:                     |                  |              
|Prepaid pension cost            |                  |               | $                                 
|Other retirement benefits       |                  |               |                                   
|Accumulated other               |                  |              
|comprehensive income            |                  |               |                                   
|                                |                  |               |                                   
|Net amount recognized           |                  |               |                                   
|                                |                  |               |                                   

The
following table represents the weighted average actuarial assumptions used to develop the
projected benefit obligation at June 30, 2005 (Plan year-end) and to develop
net periodic benefit cost for the subsequent fiscal year. Actuarial assumptions used in
calculating benefit obligations at the end of a given fiscal year are determined at that
time. The assumptions used to determine the net periodic benefit cost in a given year,
however, are established at the end of the previous Plan year-end.

|                               |  |  |  |   |      | 
|------------------------------ |  |  |  | - | ---- | 
|
|                               |  |  |  |   |      | 
|Discount rate                  |  |  |  | 5 | .25% | 
|Expected return on plan assets |  |  |  | 8 | .0%  | 

31

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
Company evaluates the reasonableness of these assumptions on an annual basis taking into
consideration long-term trends and overall market conditions that may affect the cost of
providing the benefits under its pension and post-retirement plans.

The
net periodic benefit cost related to the defined benefit plans is made up of the following
components:

|                               | Pension Benefits | SERP Benefits
|------------------------------ | ---------------- | -------------
|                               |                  |              
|
|                               |                  |              
|Service cost                   |                  |              
|Interest cost                  |                  |              
|Expected return on plan assets |                  |              
|Net amortization               |                  |              
|                               |                  |              
|Net periodic benefit cost      |                  |              
|                               |                  |              

|                          | PostretirementHeath Care Benefits
|------------------------- | ---------------------------------
|                          |                                  
|
|                          |                                  
|Service cost              |                                  
|Interest cost             |                                  
|Net amortization          |                                  
|                          |                                  
|Net periodic benefit cost |                                  
|                          |                                  

The
health care cost trend rate used to determine the postretirement health-care benefit
obligation was 8.0% for 2005 and gradually decreases to 5.0% in 2008. The trend rate is a
significant factor in determining the amounts reported. A one-percentage-point change in
these assumed health-care cost trend rates would have the following effect on net periodic
benefit cost:

|One-Percentage Point                         | Increase | Decrease
|-------------------------------------------- | -------- | --------
|                                             |          |         
|Effect on total of service and interest cost |          |         
|components                                   |          |         
|Effect on postretirement health-care benefit |          |         
|obligation                                   |          |         

The
expected long-term rate of return used to determine the net periodic benefit cost was 8.0%
for both years. The Companys pension plan weighted-average asset allocation, by
asset category was as follows:

|                                 |  | 
|-------------------------------- |  | 
|
|                                 |  | 
|Equity securities                |  | 
|Debt securities                  |  | 
|Money market, stable value funds |  | 
|and cash                         |  | 
|                                 |  | 
|Total                            |  | 
|                                 |  | 

The
Company employs a total return investment approach whereby a mix of equities and fixed
income investments are used to maximize the long-term return of plan assets for a prudent
level of risk. Risk tolerance is established through careful consideration of plan
liabilities, plan funded status, and corporate financial condition. The investment
portfolio is comprised of a diversified blend of equity investments, including a mix of
large and small capital mutual funds, as well as growth, value, international mutual funds
and Company stock. Fixed income investments include both individual debt issues, along
with short-term and intermediate term bond funds.

32

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
Company reviews historical market data and long-term historical relationships, along with
current market factors, such as inflation and interest rates when determining the
long-term rate of return for plan assets. Peer data and historical returns are also
reviewed to check the reasonableness and appropriateness of the long-term rates.

The
Company expects to contribute approximately $105,000 to its Canadian defined benefit
pension plan, $312,000 to its SERP plan and $186,000 to its other post retirement benefit
plan in fiscal 2006. The U.S. defined pension plan will only be funded if it becomes
necessary under SFAS No. 87 to avoid an additional minimum liability from being recorded
on the consolidated financial statements. The estimated future benefit payments under our
benefit plans are as follows:

|          |  |  |  
|--------- |  |  | -
|
|          |  |  |  
|2006      |  |  | $
|2007      |  |  |  
|2008      |  |  |  
|2009      |  |  |  
|2010      |  |  |  
|2011-2015 |  |  |  
|          |  |  |  

The
Companys Board of Directors annually approves contributions to the defined
contribution plans. Expense for the discretionary profit-sharing plan amounted to
$759,869, $700,666 and $667,192 in fiscal 2005, 2004 and 2003, respectively.

The
Company also provides a 401(k) plan for all of its employees. Employees may contribute 100
percent of their pay up to Internal Revenue Service limits. For hourly employees, the
Company will match 50 percent of the first 4 percent that an employee contributes. The
amount expensed for the Company match provision of the plan was $203,053, $218,481, and
$225,473 in fiscal 2005, 2004 and 2003, respectively.

# NOTE 10. Income Taxes

Income
tax expense (benefit) consists of:

|Year Ended               | July 2,2005 | July 3,2004 | June 28,2003
|------------------------ | ----------- | ----------- | ------------
|                         |             |             |             
|Current:                 |             |             |             
|United States            |             |             | $           
|Foreign, state and local |             |             |             
|                         |             |             |             
|Total current            |             |             |             
|                         |             |             |             
|Deferred:                |             |            
|United States            |             |             |             
|Foreign                  |             |             |             
|State and local          |             |             |             
|                         |             |             |             
|Total deferred           |             |             |             
|                         |             |             |             
|Income tax expense       |             |             | $           
|                         |             |             |             

33

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
difference between the federal statutory tax rate and the effective tax rate was as
follows:

|Year Ended                            | July 2,2005 | July 3,2004 | June 28,2003
|------------------------------------- | ----------- | ----------- | ------------
|                                      |             |             |             
|Federal income taxes at the statutory |             |             |             
|rate                                  |             |             | $           
|Foreign earnings taxed at foreign     |             |            
|statutory rate                        |             |             |             
|State and local income taxes          |             |             |             
|Tax audit settlement                  |             |             |             
|Utilization of previously disallowed  |             |            
|loss                                  |             |             |             
|Valuation reserve for subsidiary      |             |            
|state taxes                           |             |             |             
|Expiration of statutory period/R&D    |             |            
|credits                               |             |             |             
|Other                                 |             |             |             
|                                      |             |             |             
|Income tax expense                    |             |             | $           
|                                      |             |             |             

During
the third quarter of fiscal 2005, the Company recognized one-time tax benefits of
$594,000. Of this total, $372,000 related to the expiration of a certain statutory period
and the related reversal of the associated tax contingencies. The remaining $222,000 of
tax benefits was related to amended filings for prior year research and development
credits.

During
fiscal 2003, the Company amended its income tax returns previously filed for fiscal years
1997 and 1999. A change in the federal tax law allowed the Company to utilize a portion of
its capital loss from fiscal 1999 and 1997 that had been previously disallowed. As a
result of this change, the Company recognized an income tax benefit of $607,000.

The
sources of the net deferred income tax liability were as follows:

|                                         | July 2, 2005 | July 3, 2004
|---------------------------------------- | ------------ | ------------
|                                         |              |             
|Property and equipment                   |              |             
|Pension accrual                          |              |             
|Subsidiary state tax NOL                 |              |             
|Supplemental retirement plan             |              |             
|Benefit related accruals                 |              |             
|Inventory reserves                       |              |             
|Rebates, advertising and royalty accrual |              |             
|Derivative instrument                    |              |             
|Other, including valuation allowances    |              |             
|                                         |              |             
|                                         |              |             
|                                         |              |             

The American
Jobs Creation Act of 2004 (the Jobs Act), enacted on October 22, 2004,
provides for a temporary 85% dividends received deduction on certain foreign earnings
repatriated during a one-year period. To qualify for the deduction, the earnings must be
reinvested in the United States pursuant to a domestic reinvestment plan established by a
Companys Chief Executive Office and approved by the Companys Board of
Directors. Certain other criteria in the Jobs Act must be satisfied as well. The
Companys period during which the qualifying distributions can be made includes
fiscal 2006.

34

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
Company is in the process of determining the amount of foreign earnings that will be
expatriated, if any, under the repatriation provisions of FSP 109-2, however, the Company
has not completed an evaluation of the impact of repatriating funds from its Canadian
subsidiary. A formal plan has not been approved as of the date of this report to
repatriate funds back to the United States, however, the Company anticipates that this
action will occur in fiscal 2006. The Company is considering $2.0 million to $4.0 million
to be repatriated. The related anticipated income tax effect of such repatriation is not
estimable at this time.

The
Companys Indiana subsidiary incurred a net operating loss in fiscal 2005. The
Company has total state net operating loss carryforwards in the amount of $820,000, which
expire from 2022 to 2024. Due to the fact that the Company is no longer manufacturing in
that state and will most likely have very little income tax expense payable to that state,
it is unlikely that the NOL will be utilized. Accordingly, management has recorded a
valuation reserve for the entire balance.

# NOTE 11. Stock Option
Plans

The
1987 Stock Option Plan provided for the grant of options to key employees of the Company,
which provided the ability to purchase shares of common stock. Options were granted at or
above the market price of the Companys common stock on the date of the grant, were
exercisable from that date and terminated 10 years from the grant date. The plan, as
amended in October 1991 and in October 1994, authorized a total of 300,000 shares to be
available for issuance under the plan. Grants can no longer be made under the 1987 Stock
Option Plan.

The
Companys 1997 Stock Incentive plan provided 660,000 shares of the Companys
stock for issuance. Issuance could be in the form of stock options or restricted stock;
however, no more than 55,000 shares could be issued as restricted stock. No options have
been granted during fiscal 2005, 2004 and 2003.

The
Companys CEO had been granted 6,600 shares of restricted common stock and the option
to purchase an additional 27,500 shares of the Companys common stock at a price of
$14.43 per share. The grant and the options were subject to specific financial objectives
within a five-year performance period that ended on February 1, 2005. The objectives were
not met and the restricted stock and the options were forfeited.

All
of the options previously granted under this plan have expired and effective July 2, 2005,
this plan has been terminated.

Transactions
under the plans are as follows:

|Year Ended             | July 2,2005 | Weighted Average Exercise Price | July 3,2004 | Weighted Average Exercise Price | June 28,2003 | Weighted Average Exercise Price
|---------------------- | ----------- | ------------------------------- | ----------- | ------------------------------- | ------------ | -------------------------------
|                       |             |                                 |             |                                 |              |                                
|Options outstanding,   |             |                                 |             |                                 |              |                                
|beginning of year      |             |                                 |             | 252,933                         |              | $                              
|                       |             |                                 |             |                                 |              |                                
|Forfeited              |             |                                 |             | (239,183                        | )            | $                              
|                       |             |                                 |             |                                 |              |                                
|Options outstanding at |             |                                
|end of year            |             |                                 |             | 13,750                          |              | $                              
|                       |             |                                 |             |                                 |              |                                
|Options exercisable at |             |                                
|end of year            |             |                                 |             | 13,750                          |              | $                              
|                       |             |                                 |             |                                 |              |                                
|Options available for  |             |                                
|grant, end of year     |             |                                 |             | -                               |              |                                
|                       |             |                                 |             |                                 |              |                                

35

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

A
summary of stock options outstanding at July 2, 2005 follows:

|Price  | Outstanding   
and Exercisable 
    Shares | Weighted-
 Average 
 Exercise
  Price | Weighted-
  Average
 Remaining
Contractual
    Life
  (Years)
|------ | ------------------------------------------ | ------------------------------------- | -------------------------------------------------------------
|$13.64 |                                            |                                       |                                                              
|$14.09 |                                            |                                       |                                                              
|       |                                            |                                       |                                                              
|       |                                            |                                       |                                                              
|       |                                            |                                       |                                                              

The
Company uses the Black-Scholes option-pricing model to determine the fair value of each
option at the grant date, however no options have been granted for the years presented
above.

# NOTE 12.
Stockholders Equity

The
Company has three classes of stock: common stock, Class B common stock and unissued
preferred stock. Each share of common stock entitles the holder thereof to one vote on all
matters submitted to the shareholders. Each share of Class B common stock entitles the
holder to 10 votes on all such matters, except that the holders of common stock are
entitled to elect, voting separately as a class, at least one-quarter of the
Companys directors to be elected at each meeting held for the election of directors.
In all other instances, holders of common stock and Class B common stock vote together,
except for matters affecting the powers, preferences or rights of the respective classes
or as otherwise required under the Michigan Business Corporation Act. With respect to
dividend rights, each share of common stock is entitled to cash dividends at least 10%
higher than those payable on each share of Class B common stock. Class B common stock is
subject to certain restrictions on transfer, but is convertible into common stock on a
share-for-share basis at any time.

The
Company has a stock repurchase program, but has not purchased any shares in either fiscal
2005 or 2004. At July 2, 2005, the Company has remaining authorization to repurchase
272,202 shares.

# NOTE 13. Business
Segments

During
fiscal 2004, management began managing the business and reviewing financial information by
market channel rather than by the previous Business Products and Home & Commercial
Products divisions.

The
Business Products division was segregated into two market channels: OEM and Idea. The OEM
market channel sells precision drawer slides, hardware and ergonomic products to original
equipment office furniture manufacturers. The Idea market channel sells ergonomic products
to independent office furniture dealers. These dealers purchase product from office
furniture manufacturers and resell the furniture along with design and installation
services to the end customer.

The
Home & Commercial Products division was segregated into two market channels: consumer
and distribution/other. The consumer market channel sells a majority of the Companys
product lines to retailers. The distribution/other market channel sells many of the
Companys product lines to kitchen and bath OEM manufacturers and full line
woodworking distributors.

The
Manufacturing division manufactures or sources all products and sells them to the four
market channels. The selling price to the market channels is equal to the standard cost of
the product. Manufacturing cost variances from standard result in an operating profit or
loss for the Manufacturing division.

Management
has limited its review of the channels to net sales to external customers and operating
profit before administrative costs as shown below. In accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, only
those measures prepared on an ongoing basis and reviewed by the chief operating decision
maker are disclosed. Due to the complexity in obtaining this information for prior years,
restatement of fiscal 2003 results by channel is impracticable.

36

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

The
accounting policies of the business segments are the same as those described in the
summary of significant accounting policies.

|                            | BusinessProductsOEM | BusinessProductsIdea | Consumer | Distributionand Other | Manufacturing | Corporateand Other | ConsolidatedTotal
|--------------------------- | ------------------- | -------------------- | -------- | --------------------- | ------------- | ------------------ | -----------------
|                            |                     |                      |          |                       |               |                    |                  
|Year Ended July 2, 2005:    |                     |                      |          |                       |               |                    |                  
|Net sales to                |                     |                     
|external customers          |                     |                      | $        | 43,120,858            |               | $                  | 9,086,172        
|Operating profit before     |                     |                     
|administrative costs, other |                     |                     
|expenses and income taxes   |                     |                      | $        | 3,096,687             |               | $                  | 1,172,306        
|Administrative costs,       |                     |                     
|other expenses              |                     |                      |          | -                     |               |                    | -                
|Income tax expense          |                     |                      |          | -                     |               |                    | -                
|                            |                     |                      |          |                       |               |                    |                  
|Net income (loss)           |                     |                      | $        | 3,096,687             |               | $                  | 1,172,306        
|                            |                     |                     
|Year Ended July 3, 2004:    |                     |                     
|Net sales to                |                     |                     
|external customers          |                     |                      | $        | 37,161,339            |               | $                  | 9,258,142        
|Operating profit before     |                     |                     
|administrative costs, other |                     |                     
|expenses and income taxes   |                     |                      | $        | (2,543,392            | )             | $                  | 1,301,708        
|Administrative costs,       |                     |                     
|other expenses              |                     |                      |          | -                     |               |                    | -                
|Income tax expense          |                     |                      |          | -                     |               |                    | -                
|                            |                     |                      |          |                       |               |                    |                  
|Net income (loss)           |                     |                      | $        | (2,543,392            | )             | $                  | 1,301,708        

In
fiscal year 2003, the Company segregated its business segments into the Office Products
and Home & Commercial Products divisions. This information is provided below:

|                          | OfficeProducts | Home andCommercialProducts | Corporateand Other | ConsolidatedTotal
|------------------------- | -------------- | -------------------------- | ------------------ | -----------------
|                          |                |                            |                    |                  
|Year Ended June 28, 2003: |                |                            |                    |                  
|Net  sales to external    |                |                           
|Customers                 |                |                            | $                  | 35,659,838       
|Income tax expense        |                |                           
|(benefit)                 |                |                            | $                  | (37,000          
|                          |                |                            |                    |                  
|Net income (loss)         |                |                            | $                  | (76,048          

37

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

Sales
to customers are attributed to the geographic areas based on the location of the customer.
Long-lived assets consist of property and equipment. Geographic information is as follows:

|Year Ended         | July 2,2005 | July 3, 2004 | June 28, 2003
|------------------ | ----------- | ------------ | -------------
|                   |             |              |              
|Net sales:         |             |              |              
|United States      |             |              | $            
|Canada             |             |              |              
|Other foreign      |             |              |              
|                   |             |              |              
|                   |             |              | $            
|                   |             |             
|Long-lived assets: |             |             
|United States      |             |              | $            
|Other foreign      |             |              |              
|                   |             |              |              
|                   |             |              | $            

The
Company does not believe that it is dependent upon any single customer, however the
Companys largest customer, who is in the Distribution/Other channel, accounts for
approximately 13.2% of consolidated gross sales.

# NOTE 14. Quarterly
Results (Unaudited)

The
table below sets forth summary unaudited information on a quarterly basis. All of the
fiscal quarters contain 13 weeks, except for the fourth quarter of fiscal 2004, which
contained 14 weeks.

|Year Ended July 2, 2005              | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter
|------------------------------------ | ----------- | ----------- | ----------- | -----------
|                                     |             |             |             |            
|Net sales                            |             |             | $           | 38,372,180 
|Gross profit                         |             |             | $           | 6,804,776  
|Operating income (loss)              |             |             | $           | 969,525    
|Net income (loss)                    |             |             | $           | 390,511    
|Earnings (loss) per share-basic and  |             |            
|diluted                              |             |             | $           | 0.09       
|Cash dividend-common stock           |             |             | $           | 0.165      
|Cash dividend-Class B common stock   |             |             | $           | 0.15       
|                                     |             |             |             |            
|
|                                     |             |             |             |            
|Net sales                            |             |             | $           | 36,005,957 
|Gross profit                         |             |             | $           | 7,052,310  
|Operating income                     |             |             | $           | 1,264,086  
|Net income                           |             |             | $           | 669,874    
|Earnings per share-basic and diluted |             |             | $           | 0.15       
|Cash dividend-common stock           |             |             | $           | 0.165      
|Cash dividend-Class B common stock   |             |             | $           | 0.15       
|                                     |             |             |             |            

# NOTE 15. Commitments and
Contingencies

In
1997, KV was sued by a former employee seeking additional benefits under an executive
retirement plan. This litigation has been dismissed and appealed through various courts.
In January 2005, the Sixth Circuit Court of Appeals denied the plaintiffs appeal of
the dismissal.

The
Canada Customs and Revenue Agency (CCRA) has performed an audit of KVs
sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary results from a
joint review by KV and its customs broker indicate that KV may be liable for certain
customs transactions, however, the amount of any such potential liability is unknown at
this time. KV is defending its position that Knape & Vogt Canada is the importer of
record for all Knape & Vogt goods shipped into Canada and management believes that
based on the information available at this time, any liability owed to the CCRA will not
have a material adverse effect on KVs earnings.

38

---



# Knape & Vogt
Manufacturing Company and Subsidiaries Notes to Consolidated
Financial Statements

During
the second quarter of fiscal 2005, a competitor filed a suit in the U.S. District Court of
the Central District of California alleging that KV infringes two of the competitors
U.S. patents. The competitor is seeking monetary damages and injunctive relief. KV has
received an opinion from its outside patent counsel that KVs products do not
infringe the competitors patents. KV has answered that it denies any liability and
will vigorously defend the suit.

KV
is also subject to other legal proceedings and claims, which arise in the ordinary course
of business.

In
the opinion of management, based on the information presently known and taking into
account established accruals of approximately $431,000 at July 2, 2005, the ultimate
liability for these matters will not have a material adverse effect on KVs financial
position or the results of its operations.

39

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of DirectorsKnape
& Vogt Manufacturing CompanyGrand Rapids, Michigan

We have audited the accompanying
consolidated balance sheets of Knape & Vogt Manufacturing Company and subsidiaries
(the Company) as of July 2, 2005 and July 3, 2004, and the related
consolidated statements of operations, stockholders equity, and cash flows for each
of the three years in the period ended July 2, 2005. Our audits also included the
financial statement schedule listed in the Index at Item 15. These financial statements
and 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.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, 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.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
Knape & Vogt Manufacturing Company and subsidiaries as of July 2, 2005 and July 3,
2004, and the results of their operations and their cash flows for each of the three years
in the period ended July 2, 2005, 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 set forth therein.

/s/ Deloitte & Touche
LLPGrand Rapids, Michigan August 10, 2005

40

---



# PART III

# ITEM 9A CONTROLS
AND PROCEDURES

| | (a) | Evaluations
of Disclosure Controls and Procedures
| | --- | -------------------------------------------------

In
order to ensure that the information that we must disclose in our filings with the
Securities and Exchange Commission is recorded, processed, summarized and reported on a
timely basis, we have adopted disclosure controls and procedures. With the participation
of management, the Companys Chief Executive Officer and our Vice President of
Finance and Treasurer have reviewed and evaluated the Companys disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of July 2,
2005 (the Evaluation Date), and have concluded that as of the Evaluation Date,
the Companys disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company would be made known to them in
connection with the Companys filing of its Annual Report on Form 10-K for the annual
period ended July 2, 2005.

| | (b) | Changes
in Internal Controls
| | --- | ----------------------------

There
were no significant changes in the Companys internal controls over financial
reporting or in other factors that could significantly affect internal controls subsequent
to the date of the most recent evaluation, nor any significant deficiencies or material
weaknesses in such internal controls requiring corrective actions. As a result, no
corrective actions were taken.

# ITEM 10 DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information
relating to directors and director nominees and executive officers of the Company,
contained in the Companys definitive Proxy Statement for its Annual Meeting of
Shareholders to be held October 21, 2005, and filed pursuant to Regulation 14A, is
incorporated herein by reference.

# ITEM 11 EXECUTIVE
COMPENSATION

The
information under the captions Summary Compensation Table, Option Grants
in Last Fiscal Year, Aggregated Stock Option Exercises in Fiscal 2005 and Year
End Option Values, and Stock Performance Graph is incorporated herein by
reference from the Companys definitive Proxy Statement for its annual Meeting of
Shareholders to be held October 21, 2005, filed pursuant to Regulation 14A.

# ITEM 12  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

# Equity Compensation
Plan Information

|Plan category                | Number of securities to      
 be issued upon exercise      of outstanding options
           (1) | Weighted-average      
 exercise price of      outstanding options
        (2) | Number of securities remaining
 available for future issuance
   under equity compensation
  plans (excluding securitiesreflected in column (1))
              (3)
|---------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                             |                                                                                                   |                                                                                |                                                                                                                                                                   
|Equity compensation plans    |                                                                                                   |                                                                                |                                                                                                                                                                   
|approved by security holders |                                                                                                   |                                                                                |                                                                                                                                                                   
|                             |                                                                                                   |                                                                                |                                                                                                                                                                   

The
information under the caption Ownership of Knape & Vogt Stock is
incorporated herein by reference from the Companys definitive Proxy Statement for
the Companys Annual Meeting of Shareholders to be held October 21, 2005, filed
pursuant to Regulation 14A.

41

---



# ITEM 13  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The
information under the caption Change in Control Arrangements and Severance
Agreements is incorporated herein by reference from the Companys definitive
Proxy Statement for the Companys Annual Meeting of Shareholders to be held
October 21, 2005, filed pursuant to Regulation 14A.

# ITEM 14 
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
information under the caption Independent Registered Public Accountants is
incorporated herein by reference from the Companys definitive Proxy Statement for
the Companys Annual Meeting of Shareholders to be held October 21, 2005, filed
pursuant to Regulation 14A.

42

---



# PART IV

# ITEM 15 EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|(a) | (1) | Financial Statements
|--- | --- | --------------------

| | The
following financial statements, all of which are set forth in Item 8, are filed as part
of this report.
| | -----------------------------------------------------------------------------------------------------------

| | Report Number inForm 10-K Report                       
| | -------------------------------------------------------
| | Consolidated Statements of Operations                  
| | Consolidated Balance Sheets                            
| | Consolidated Statements of Stockholders' Equity        
| | Consolidated Statements of Cash Flows                  
| | Notes to Consolidated Financial Statements             
| | Report of Independent Registered Public Accounting Firm

| | (2) | Financial
Statement Schedule
| | --- | ----------------------------

| | The
following financial statement schedule is included in this Form 10-K on the page noted.
| | -------------------------------------------------------------------------------------------

| | Report Number inForm 10-K Report                            
| | ------------------------------------------------------------
| | Schedule II - Valuation and Qualifying Accounts and Reserves

| | All
other schedules are not submitted because they are not applicable or not required, or
because the required information is included in the financial statements or notes thereto.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Exhibits
| | --- | --------

| | Reference
is made to the Exhibit Index, which is found on page 46 of this Form 10-K Annual
Report.
| | --------------------------------------------------------------------------------------------------

43

---



# Knape & Vogt
Manufacturing Company and SubsidiariesSchedule II 
Valuation and Qualifying Accounts and Reserves

|Column A                  | Column B | Column C | Column D | Column E 
|------------------------- | -------- | -------- | -------- | ---------
|                          |          |          |          |          
|
|                          |          |          |          |          
|Year ended July 2, 2005:  |          |          |          |          
|                          |          |         
|Allowance for:            |          |         
|Doubtful accounts         |          |          | $        | 462,000  
|Cash discounts            |          |          |          | 211,000  
|                          |          |          |          |          
|                          |          |          |          | 673,000  
|Returned goods reserve    |          |          |          | 330,000  
|Warranty reserve          |          |          |          | 287,000  
|Inventory obsolescence    |          |          |          | 1,648,000
|                          |          |          |          |          
|Year ended July 3, 2004:  |          |         
|                          |          |         
|Allowance for:            |          |         
|Doubtful accounts         |          |          | $        | 658,000  
|Cash discounts            |          |          |          | 145,000  
|                          |          |          |          |          
|                          |          |          |          | 803,000  
|Returned goods reserve    |          |          |          | 184,000  
|Warranty reserve          |          |          |          | 275,000  
|Inventory obsolescence    |          |          |          | 1,144,000
|                          |          |          |          |          
|Year ended June 28, 2003: |          |         
|                          |          |         
|Allowance for:            |          |         
|Doubtful accounts         |          |          | $        | 633,000  
|Cash discounts            |          |          |          | 122,000  
|                          |          |          |          |          
|                          |          |          |          | 755,000  
|Returned goods reserve    |          |          |          | 147,000  
|Warranty reserve          |          |          |          | 235,000  
|Inventory obsolescence    |          |          |          | 1,439,000

44

---



# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) 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.

| |  | KNAPE & VOGT MANUFACTURING COMPANYBy /s/ William R. Dutmers
      
      William R. Dutmers       Chairman of the Board       and Chief Executive Officer
By /s/ Leslie J. Cummings
      
      Leslie J. Cummings      Vice President of Finance       and Treasurer
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: August 31, 2005

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below on August 31, 2005, by the following persons on behalf of the registrant in the
capacities indicated.

|/s/ William R. Dutmers
William R. Dutmers, Chairman of the Board and Chief Executive Officer |  | /s/ John E. Fallon
John E. Fallon, Director
|---------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------

|/s/ Thomas A. Hilborn
Thomas A. Hilborn, Director |  | /s/ Michael J. Kregor
Michael J. Kregor, Director
|--------------------------------------------------------------- |  | ---------------------------------------------------------------

|/s/ Richard S. Knape
Richard S. Knape, Director |  | /s/ Robert J. Knape
Robert J. Knape, Director
|------------------------------------------------------------- |  | -----------------------------------------------------------

|/s/ Gregory Lambert
Gregory Lambert, Director |  | /s/ Christopher Norman
Christopher Norman, Director
|----------------------------------------------------------- |  | -----------------------------------------------------------------

45

---



# KNAPE & VOGT
MANUFACTURING COMPANY ANNUAL REPORT 
FORM 10-K

# EXHIBIT INDEX

| | 3(a) | Certificate of Amendment to the Articles of Incorporation, and the Restated
                    Articles of Incorporation of the Company, which were filed as Exhibit 3(a) of
                    the Registrants Form 10-K Annual Report for the fiscal year ended June 30,
                    1987, are incorporated by reference.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3(b) | Bylaws as amended October 15, 2004, filed herewith as Exhibit 3(b). Amended
                    section was filed on October 15, 2004 in the Registrants Form 8K.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(a) | Supplemental Executive Retirement Plan, which was filed as Exhibit 10 of the
                    Registrants Form 10-K Annual Report for the fiscal year ended June 30,
                    1981, is incorporated by reference.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(b) | Knape & Vogt Manufacturing Company 1987 Stock Option Plan, effective October
                    16, 1987, which was filed as Exhibit I to Registrants definitive Proxy
                    Statement dated September 23, 1987, is incorporated by reference.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(c) | Knape & Vogt Manufacturing Company Employees Retirement Savings Plan
                    (July 1, 1989 Restatement), as amended, which was filed as Exhibit 99 to
                    Registrants Registration Statement on Form S-8 (Reg. No. 33-88212), is
                    incorporated by reference.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(d) | Loan agreement with Comerica Bank dated August 28, 2003, which was filed as
                    Exhibit 10(a) of the Registrants Form 10-Q Quarterly Report for the first
                    quarter ended September 27, 2003, is incorporated by reference.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(h) | Interest swap agreement with Bank One dated June 1, 1999, which was filed as
                    Exhibit 10(e) of the Registrants Form 10-K Annual Report for the fiscal
                    year ended June 30, 1999, is incorporated by reference.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(i) | Knape & Vogt Manufacturing Company 1997 Stock Incentive Plan, which was
                    filed as Appendix A to the Registrants proxy statement dated September 17,
                    1997, is incorporated by reference.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(j) | Supplemental Executive Retirement Plan, adopted effective as of June 29, 2005,
                    is filed herewith.
| | ----- | ---------------------------------------------------------------------------------------------------------------------

| | 10(k) | Annual Incentive Plan, adopted effective as of July 3, 2005, is filed herewith.
| | ----- | -------------------------------------------------------------------------------

| | 10(l) | Form of Management Continuity Agreements adopted effective as of June 30, 2005,
                    between Knape & Vogt Manufacturing Company and William R. Dutmers, Raymond
                    N. Watson, Leslie J. Cummings, John J. Master, Daniel D. Pickett, Robert J.
                    Knape and Timothy R. Graber, is filed herewith.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(m) | Agreement dated October 29, 2002 between Knape & Vogt
                    Manufacturing Company and William R. Dutmers is filed herewith.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------

| | 10(n) | First Amendment to the Credit Agreement with Comerica Bank dated May 31, 2005 is
                    filed herewith.
| | ----- | --------------------------------------------------------------------------------------------------------------------

| | 21 | Subsidiaries
of Registrant.
| | -- | ---------------------------

| | 23 | Consent
of Deloitte & Touche LLP, independent registered public accountants.
| | -- | ----------------------------------------------------------------------------

| | 31.1 | Certificate
of the Chairman of the Board and Chief Executive Officer of Knape & Vogt
Manufacturing Company pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.2 | Certificate
of the Executive Vice President of Finance and Treasurer of Knape & Vogt
Manufacturing Company pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.1 | Certificate
of the Chairman of the Board and Chief Executive Officer of Knape & Vogt
Manufacturing Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46