SECURITIES AND EXCHANGE
COMMISSION Washington, D.C. 20549 FORM 10-K

(Mark One)

|[X] | Annual
report pursuant to section 13 or 15(d) of the Securities Exchange Act of
               1934 for the fiscal year ended July 3, 2004 or
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|[ ] | Transition  report  pursuant  to  section  13 or  15(d)  of the  Securities  Exchange
 Act of 1934 for the          transition period from                      to
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Commission file number
000-01859

# KNAPE & VOGT
MANUFACTURING COMPANY (Exact name of
registrant as specified in its charter)

|                                                               | 
|-------------------------------------------------------------- | 
|Michigan                                                       | 
|(State or other jurisdiction of incorporation or organization) | 

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:

|                    | 
|------------------- | 
|Title of each class | 
|                   
|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. ____

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes____
NoX

The aggregate market value of voting
stock held by nonaffiliates of the registrant was $53,970,371 as of December 27, 2003.

Number of shares outstanding of
each class of common stock as of August 27, 2004: 2,339,617 shares of Common Stock,
par value $2.00 per share, and 2,177,488 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 15, 2004, are incorporated by reference into
Part III of this Report.

1

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# PART I

# ITEM 1  BUSINESS

# Item 1(a)  General
Development of Business

The
Company is engaged primarily in the design, manufacture, and marketing of functional
hardware, storage-related components and ergonomic products that serve the consumer,
contract builder, hardware, and original equipment manufacturer (OEM) markets.
The Company 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 includes Knape & Vogt Manufacturing Company, its predecessors
and its subsidiaries.

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

During
the fourth quarter of 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 Office Products and Home & Commercial
Products divisions.

The
Office Products division was segregated into two market channels: OEM and dealer. The OEM
market channel sells precision drawer slides, hardware and ergonomic products to original
equipment office furniture manufacturers and in fiscal 2004 accounted for approximately
25% of consolidated net sales. The dealer market channel sells ergonomic products to
independent office furniture dealers and in fiscal 2004 accounted for approximately 6% 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 the Companys
product lines to retailers and in fiscal 2004 accounted for approximately 26% of
consolidated net sales. The distribution/other market channel sells many of the
Companys product lines to kitchen and bath OEM manufacturers and full line
woodworking distributors and in fiscal 2004 accounted for approximately 43% 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. The Company competes primarily on the basis of product
design, product quality, price, on-time delivery, and customer service. The precision
slide market consists of one large manufacturer, a number of smaller domestic
manufacturers, and an increasing number of foreign manufacturers that compete primarily on
the basis of product quality and price.

# Item 1(c) 
Narrative Description of Business

Products,
Services, Markets and Methods of Distribution. The Company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, the Companys many different hardware
products include closet rods, kitchen storage products and various fixtures. The
Companys ergonomic products include adjustable keyboard trays, gel wrist rests,
floating mousepads, flat-screen monitor arms, office lights and height adjustable tables.

The
Company 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 2005 will be approximately $4.0 million. The fiscal 2005 spending will reflect
investments made primarily to bring new products and product enhancements to the
Companys customers.

2

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Sources
and Availability of Raw Materials. Most of the Companys storage products are
produced primarily from steel or wood. Historically, the Company has not experienced
difficulty in obtaining these raw materials and does not anticipate any difficulty in the
future, as the raw materials used are not unique.

During
the last half of fiscal 2004, the Company began to realize increased steel costs for the
domestic production of many of its products. The uncertainty in the steel market makes it
difficult for management to predict whether steel prices will continue to rise. This issue
is more fully addressed in the Management, Discussion and Analysis section of this report.

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

Seasonal
Nature of Business.  The Company's business is not seasonal.

Working
Capital Practices. The Company 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 the Companys business.

Importance
of Limited Number of Customers. The Company 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. The Company estimates that at present it has over 1,500 active
customers with approximately 30,000 outlets, of which the five largest customers account
for approximately 29% of gross sales and only the Companys largest customer accounts
for approximately 12% of gross sales.

Backlog
of Orders. As of July 3, 2004, the Companys backlog of unfilled orders was $4.5
million. At June 28, 2003, the Companys backlog totaled $4.0 million. It is expected
that substantially all the orders forming the backlog at July 3, 2004, will be filled
during the current fiscal 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 the Company does have two contracts with the General Services
Administration (GSA) for certain of its ergonomic products, the sales volume
under these contracts does not result in a significant risk if the government were to
terminate these contracts. These contracts contain standard price reduction provisions.

Competition. All
aspects of the Companys business are highly competitive. Competition           is
based upon price, service and quality. In the various markets served by the
          Company, it competes with a number of manufacturers that have significantly
          greater resources and sales, including several conglomerate corporations, and
          with numerous smaller companies. While the Company is not aware of any reliable
          statistics that are available to enable the Company to accurately determine its
          relative position in the industry, either overall or with respect to any
          particular product or market, the Company 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 the
Companys core strengths. Through research, the Company seeks to define and clarify
customer needs and problems and to design innovative products, which solve these customer
needs and problems. Approximately $2,166,000 was spent in fiscal 2004 in the development
of new products and in the improvement of existing products; approximately $2,031,000 was
spent in fiscal 2003 and $1,977,000 in fiscal 2002 for the same purposes. In addition,
royalties paid to designers of the Companys products are variable based on sales
volumes and are not included in research and development costs.

Environmental
Matters. The Company 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 the Company.

3

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Employees.  The
Company considers one of its major competitive strengths to be its human
          resources. There have been no work stoppages or labor disputes in the
          Companys history, and its relations with its employees are considered
          good. At July 3, 2004, the Company employed 806 persons. None of the Companys employees
are represented by collective bargaining agents. In addition to its
          employee work force, the Company uses purchased labor to meet uneven demand in
          its manufacturing operations.

# Item 1(d) 
Information About Foreign Operations

The
Companys Canadian operations accounted for approximately 8% of consolidated net
sales. Approximately 3% of consolidated net sales were derived from export shipments from
the Companys United States operations to customers in other foreign countries. The
Company 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 the Company, such as tariff and foreign economic policies, may affect
future results of such business. Reference is made to Note 13 of the Notes to the
Companys Consolidated Financial Statements contained herein for the fiscal year
ended July 3, 2004, for a presentation of additional information concerning the
Companys foreign operations.

# ITEM 2 
PROPERTIES

The
Company owned or leased the following offices and manufacturing facilities as of July 3,
2004:

|Location               | Description | Interest                                       
|---------------------- | ----------- | -----------------------------------------------
|                      
|Grand Rapids, Michigan |             | Executive offices and manufacturing facilities;
|                       |             | 444,000 sq. ft. on 41 acres.                   
|                      
|Muncie, Indiana        |             | Manufacturing facilities and office;           
|                       |             | 98,000 sq. ft. on 12 acres.                    
|                      
|Mississauga, Ontario   |             | Office; 1,900 sq. ft.                          
|                      
|Chicago, Illinois      |             | Showroom; 3,000 sq. ft.                        

The
facilities indicated as owned, are owned in fee by the Company and are subject to no
material encumbrances. The Company 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 3, 2004, the Company spent approximately $27,000,000 for
expansion, modernization and improvements of its facilities and equipment.

# ITEM 3  LEGAL
PROCEEDINGS

The
Canada Customs and Revenue Agency (CCRA) has performed an audit of the
Companys sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary
results from a joint review by the Company and its customs broker indicate that the
Company may be liable for certain customs transactions, however, the amount of any such
potential liability is unknown at this time. The Company 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 the
Companys earnings.

The
Company was sued in the Kent County, Michigan Circuit Court in 1997 by a former employee
seeking additional benefits under an executive retirement plan. The Circuit Court ruled in
favor of the plaintiff, but in June 2002, the Circuit Court was reversed on the
Companys appeal to the Michigan Court of Appeals. A delayed
request for leave to appeal to the Michigan Supreme Court which the plaintiff filed was denied during
the fourth quarter of fiscal 2003.  In August 2002, the plaintiff
filed a lawsuit seeking these retirement benefits in the Federal District Court for the
Western District of Michigan. The
Company moved to dismiss the federal litigation based on the statute of limitations. In
September 2003, the Federal District Court dismissed the litigation. In October 2003, the
plaintiff appealed the dismissal to the Sixth Circuit Court of Appeals.  That appeal is pending.
Management believes that any
liability resulting from this case will not have a material adverse affect on the
Companys earnings.

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

4

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In the opinion of management, based
on the information presently known and taking into account established accruals of
approximately $455,000 at July 3, 2004, the ultimate liability for these matters will not
have a material adverse effect on the Company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 3, 2004.

# ADDITIONAL ITEM 
EXECUTIVE OFFICERS OF THE REGISTRANT

The
executive officers of the Company, at July 3, 2004, were as follows:

|Name                  | Age | Positions and Offices Held | Year First Electedan Executive Officer
|--------------------- | --- | -------------------------- | --------------------------------------
|                      |    
|William R. Dutmers    |     | 48                         |                                       
|Leslie J. Cummings    |     | 39                         |                                       
|J. Scott Royal-Ferris |     | 49                         |                                       
|Raymond N. Watson     |     | 51                         |                                       

Mr.
          Dutmers was named Chairman of the Board of Directors in January 1998. Mr.
          Dutmers has been a member of the Board of Directors since April 1996. He was
          named Chief Executive Officer in May 1999. Mr. Dutmers was the President of G
          & L, Inc., a business consulting firm, from 1991 to 1997.

Ms.
          Cummings was named Vice President of Finance and Treasurer in July 2000. Ms.
          Cummings joined the Company in 1998 as the Assistant Treasurer. Prior to that
          she was employed at Herman Miller, Inc. from 1992 to 1998.

Mr.
          Royal-Ferris was named Vice President of Business Development-Consumer in
          October 2002. Mr. Royal-Ferris joined the Company in 2001 as the Director of
          Business Development  Consumer. Before joining the Company, Mr. Royal
          Ferris had been self-employed from September 2000 to July 2001. Prior to
          that, he served as the Vice President of Sales/Marketing for Keystone
          Manufacturing from April 2000 until August 2000; as the Vice President of Sales
           Kitchen Division for Windmere Durable Holdings from January 1998 to March
          2000; and as Vice President of Sales for The Rival Company from 1990 until
          January 1998.

Mr.
          Watson was named President of Operations in March 2002. Before joining the
          Company, he had been employed at the Marmon Group from 1993 to 2002, most
          recently as the Vice President of Finance of Marmon Retail Services.

All
terms of office are on an annual basis and will expire on October 15, 2004.

5

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# PART II

# ITEM 5  MARKET
PRICE FOR REGISTRANTS COMMON EQUITY,
RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES

Market
Price.The Company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
27, 2004, there were approximately 3,000 shareholders of the Companys Common Stock
and Class B Common Stock.

|       | Fiscal 2004 | Fiscal 2003
|------ | ----------- | -----------
|       |             |            
|       |             |            
|       |            
|First  |             | $11        
|Second |             | $12        
|Third  |             | $14        
|Fourth |             | $13        

Dividends.
          The Company 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 13, 2004, the Board of Directors declared a $0.165 per share cash dividend on
shares of the Companys common stock and $0.15 per share cash dividend on shares of
its Class B common stock, payable September 10, 2004, to shareholders of record on
August 27, 2004.

Securities
Authorized for Issuance Under Equity Compensation Plans.The Company had the following
equity compensation plans at July 3, 2004:

|                                 | Equity Compensation Plan Information
|-------------------------------- | ------------------------------------
|
|                                 |                                     
|Equity compensation plans        |                                     
|approved by security holders     |                                     
|Equity compensation plans        |                                     
|not approved by security holders |                                     
|                                 |                                     
|Total                            |                                     
|                                 |                                     

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

6

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# ITEM 6  SELECTED
FINANCIAL DATA

|For the Year Ended                                      | 2004 | 2003               | 2002 | 2001               | 2000
|------------------------------------------------------- | ---- | ------------------ | ---- | ------------------ | ----
|                                                        |     
|Summary of Operations                                   |      |                    |      |                    |     
|Net sales                                               |      | $148,977,742       |      | $124,920,476       |     
|Gross profit                                            |      | $  30,728,343      |      | $  27,282,166      |     
|Gross profit %                                          |      | 20.6               | %    | 21.8               | %   
|Selling, general and administrative                     |      | $  23,568,741      |      | $  23,190,715      |     
|Selling, general and administrative %                   |      | 15.8               | %    | 18.8               | %   
|Operating income                                        |      | $    7,159,602     |      | $    3,820,126     |     
|Operating income %                                      |      | 4.8                | %    | 3.1                | %   
|Net income                                              |      | $    3,734,932     |      | $    2,230,899     |     
|                                                       
|Common Stock Data                                       |     
|Primary and diluted earnings per share                  |      | $             0.83 |      | $             0.49 |     
|Weighted-average shares outstanding-diluted             |      | 4,516,245          |      | 4,516,706          |     
|Dividends per share--common                             |      | $             0.66 |      | $             0.66 |     
|Dividends per share--Class B common                     |      | $             0.60 |      | $             0.60 |     
|Year-end stock price                                    |      | $           12.98  |      | $           10.47  |     
|                                                       
|Year-end Financial Position                             |     
|Total assets                                            |      | $  96,251,326      |      | $  92,348,829      |     
|Working capital                                         |      | $  27,338,785      |      | $  20,457,269      |     
|Current ratio                                           |      | 2.2                |      | 2.0                |     
|Total long-term debt and capital leases                 |      | $  24,552,605      |      | $  24,065,420      |     
|Total long-term debt and capital leases as a % of total |     
|capital (a)                                             |      | 40.0               | %    | 40.9               | %   
|Stockholders' equity                                    |      | $  36,824,218      |      | $  34,761,862      |     
|Other Data/Key Ratios                                   |     
|Capital expenditures                                    |      | $    1,199,398     |      | $    3,707,536     |     
|Depreciation and amortization                           |      | $    6,400,358     |      | $    6,642,091     |     
|                                                        |     

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

7

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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 the Company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 2003 and 2002.

# 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.

During
the fourth quarter of 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 Office
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 prior years
are shown below segregated by divisions only.

The
Office Products division was segregated into two market channels: OEM and dealer. The OEM
market channel sells precision drawer slides, hardware and ergonomic products to original
equipment office furniture manufacturers. The dealer 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.

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. 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.

While
net sales and earnings improved during fiscal 2004, the Company was challenged by a
significant increase in steel costs during the last half of the fiscal year. The Company
was able to successfully procure sufficient quantities of steel to prevent any
interruption in production, however, the cost of raw steel increased over 50% during this
time period. KV was able to partially offset these raw material increases through a
combination of price increases and surcharges to many of its customers. A more detailed
discussion of this issue follows in the Gross Margin section of this report.

# 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.

8

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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
passes 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,
the Company does provide 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 the Company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,
the Company has been able to effectively monitor the creditworthiness of its customers on
a monthly basis and has not experienced a material loss.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 2004, we increased our discount rate from 5.50% from
6.25%. 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. For example, a 50 basis point change in the long-term rate of return
would change our expense by approximately $104,000 and a 50 basis point change in the
discount rate would change our expense by approximately $110,000. See Note 9 to the
Consolidated Financial Statements for more information regarding costs and assumptions
for our employee retirement plans.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Loss
Contingencies The Company is subject to legal proceedings and claims arising
out of the normal course of business. The Company 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. The Company 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 estimates with
the Audit Committee of our Board of Directors and the Audit Committee has reviewed the
Company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 our inventory reserves or our evaluation of the carrying value of
the long-lived assets. Further, in accordance with SFAS No. 144, paragraph 8; we have not
had to test for recoverability of our long-lived assets.

9

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# Results of Operations

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

|Year Ended                                   | July 3,2004 | June 28,2003 | June 29, 2002
|-------------------------------------------- | ----------- | ------------ | -------------
|                                             |            
|Net sales                                    |             | 100          | .0%          
|Cost of sales                                |             | 79           | .4           
|                                             |             |             
|Gross profit                                 |             | 20           | .6           
|Selling, general and administrative expenses |             | 15           | .8           
|Other                                        |             | -            |              
|                                             |             |             
|Operating income                             |             | 4            | .8           
|Other expense                                |             | 1            | .1           
|                                             |             |             
|Income before income taxes                   |             | 3            | .7           
|Income taxes                                 |             | 1            | .2           
|                                             |             |             
|Net income                                   |             | 2            | .5%          
|                                             |            

# Sales

The
table below summarizes our sales by division for the past three fiscal years (in millions)
and by market for fiscal 2004 and 2003:

|Year Ended             | July 3,2004 | %         | June 28,2003 | %  | June 29,2002 | %        
|---------------------- | ----------- | --------- | ------------ | -- | ------------ | ---------
|                       |            
|Office Products OEM    |             | $      37 | .3           | 25 | .0%          | $      26
|Office Products Dealer |             | 9         | .1           | 6  | .2%          | 8        
|                       |            
|Total Office Products  |             | $      46 | .4           | 31 | .2%          | $      35
|                       |            
|Consumer               |             | $      38 | .1           | 25 | .6%          | $      34
|Distribution and Other |             | 64        | .5           | 43 | .2%          | 55       
|                       |            
|Total Home and         |            
|Commercial Products    |             | $    102  | .6           | 68 | .8%          | $      89
|                       |            
|Total Net Sales        |             | $    149  | .0           | 10 | 0%           | $    124 
|                       |            

Consolidated
net sales for fiscal 2004 increased 19.3% when compared to fiscal 2003, which followed a
decline of 5.0% when comparing fiscal 2003 to fiscal 2002. It should be noted that fiscal
2004 included 53 weeks of sales versus 52 weeks in both fiscal 2003 and 2002. Excluding
the extra week of sales, sales for fiscal 2004 would have increased approximately 16.9%
over fiscal 2003.

Our
Office Products division sales increased 30.2% when compared to fiscal 2003, following a
decline of 9.6% in fiscal 2003 when compared to fiscal 2002. The office furniture industry
shipments, as a whole, grew slightly during the eleven-month period from July 2003 to May
2004 as seen in the Business and Institutional Furniture Manufacturers Association
(BIFMA) results. For this time period they reported an increase in shipments of 1.5% and
an increase in orders of 3.8%. This followed a decline in shipments of 10.2% in fiscal
2003. The Company has been successful in growing sales to the Office 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 Company also introduced new ergonomic products, including a new line
of height adjustable tables, to both markets during the fiscal year.

Our
Home and Commercial Products division sales for fiscal 2004 increased by 14.9% when
compared to fiscal 2003, following a slight decline in fiscal 2003 when compared to fiscal
2002. New products, including the Shelf Made Instant Shelves, the new line of
display ledges, the new line of garage organization products and the 4X4 Pocket Door
heavy-duty precision drawer slides, assisted in expanding sales to existing customers and
obtaining new customers in both markets. Further, KV has seen growth in the distribution
market where it made significant investments in the prior fiscal year.

10

---



In
addition to ongoing cooperative advertising and rebate programs, certain introductory
promotional incentives were offered during fiscal 2004 in the Consumer market to a few
customers to encourage them to either add new product lines to their offering or to add KV
as a vendor. These incentives reduced net sales and gross margins by approximately $1.7
million in fiscal 2004. The Company expenses these items at the initial shipment of
product to the customer or pro-rata based on sales volumes over the contract period, if
the Company has firm written purchase commitments from the customers. Unless new customers
or significant new product lines are added during the upcoming fiscal year, management
believes that these introductory promotional incentives will be significantly less in
fiscal 2005.

During
the first quarter of fiscal 2003, we launched 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 3, 2004 and June 28, 2003, the total inventory in this program totaled $3.3 and $3.6
million at cost, respectively.

New
product sales (those products introduced within the last 24 months) were approximately
$21.7 million in fiscal 2004 compared with $11.7 million in fiscal 2003 and $8.0 million
in fiscal 2002. New product introductions, along with value-added services, such as
vendor-managed inventory, remain key components of our strategy.

# Gross Profit

Gross
profit, as a percentage of net sales, was 20.6% in fiscal 2004, compared to 21.8% in
fiscal 2003 and 23.5% in fiscal 2002. During the third quarter of fiscal 2004, the Company
began to realize increased steel costs for production of many of its products. The
increased steel costs resulted in the Company paying approximately $2.4 million more for
raw steel during the last six months of the fiscal year than it would have if the steel
prices had remained stable. The uncertainty in the steel market makes it difficult for
management to predict whether steel prices will continue to rise. Management has been able
to quantify that a 5% increase in raw steel prices will result in approximately a 2.5%
decrease in the Companys gross margin, assuming the Company is unable to pass these
increased raw material costs on to its customers. To date, the Company has been successful
in passing through approximately 55% of the added costs to its customers. KV has seen the
steel market stabilize for the summer of 2004, but early indicators, such as the price of
scrap metal, are signaling potential increases in the fall.

The
Company has faced a competitive threat from Asian producers of both utility and precision
drawers slides. 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, the Company has taken preliminary
steps to establish its own manufacturing entity in mainland China. KV will be filing the
necessary registrations for the entity and anticipates being in production in the early
part of calendar 2005. The total initial investment is anticipated to be no more 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 of its Office Products OEM market.

Domestically,
the Company remains committed to utilizing lean manufacturing initiatives to minimize its
manufacturing costs. 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. In
addition, KV is focusing its domestic production capabilities on manufacturing the new
products, which typically represent higher margin items.

The
decline in gross margins when comparing fiscal 2003 to fiscal 2002 reflects the fact that
KV has a significant investment in its manufacturing process, specifically machinery and
tooling. With the decrease in sales volumes during fiscal 2003, it was more difficult to
effectively leverage the fixed portion of these costs. In addition, KV was negatively
impacted by increases in raw steel costs, ranging from 10% to 15% depending on the grade
of steel, as a result of the statutory steel tariffs. These tariffs were removed in fiscal
2004, but as noted steel prices still increased during the last six months of fiscal 2004.

# Selling, General and
Administrative

Selling,
general and administrative expenses, as a percent of net sales, were 15.8% in fiscal 2004,
compared to 18.6% in fiscal 2003 and 17.2% in fiscal 2002. In fiscal 2004, KV was
successful in leveraging its selling and administrative costs as sales volumes grew, 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 prior year results reflected additional
marketing to reintroduce its 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.

11

---



# Impairment and Severance
Costs

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.

In
the fourth quarter of fiscal 2002, we recorded a pre-tax impairment charge of $690,000 in
accordance with Financial Accounting Standard No. 144 for certain precision drawer slide
tooling. While we continue to produce the drawer slides, the future cash flows associated
with the sales of this particular product line were less than the cost of the tooling
recorded. In addition, during the fourth quarter of fiscal 2002, we adopted a plan to
reduce our salaried workforce in the Grand Rapids, Michigan facility. We recorded $245,000
(pre-tax) in severance costs for this workforce reduction.

# Interest Expense and
Other Net Expenses

Interest
expense was $1.6 million in fiscal 2004, compared to $1.5 million in fiscal years 2003 and
2002. 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.

Net
other expense was $2,202 in fiscal 2004, compared to net other income of $255,854 and
$34,567, respectively, in fiscal 2003 and fiscal 2002. Fiscal 2004 included exchange rate
losses in our Canadian entity and royalty income, received on certain patent settlements,
that was significantly less than it had been in the two previous fiscal years. In
addition, fiscal 2003 included interest of approximately $95,000 received related to
refunds from the Internal Revenue Service.

# Income Taxes

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. Overall, rates have increased due to the ratio of foreign versus domestic income and
expanded state exposure. See Note 10 to the Consolidated Financial Statements for a
reconciliation of the effective tax rate.

# Net Income

Net
income was $3.7 million, or $0.83 per diluted share, in fiscal 2004 compared to $2.2
million, or $0.49 per diluted share, in fiscal 2003 and $3.8 million, or $0.83 per diluted
share, in fiscal 2002. Improved sales volumes, along with better leveraging of selling and
administrative expenses, were the primary contributors to the net income improvement in
fiscal 2004.

# Liquidity and Capital
Resources

Cash Flows Provided by
Operating Activities

Net
cash provided by operating activities in fiscal 2004 was $4.9 million compared to $.5
million in fiscal 2003 and $13.4 million in fiscal 2002. The Company has invested
approximately $5.0 million in inventory during fiscal 2004 to support the launch of
certain new products. Following the initial launch period for these products, management
will be able to reduce this level of cash invested in inventory and accordingly, expects
the inventory balances to be lower in fiscal 2005. In addition, the 2004 increased sales volume
 resulted in a $3.1 million increase in accounts receivable.

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.

12

---



Cash Flows Used for
Investing Activities

Cash
used for investing activities was $1.2 million in fiscal 2004, compared to $3.5 million in
fiscal 2003 and $2.3 million in fiscal 2002. The capital expenditures in fiscal 2004
represented investments in tooling for new products, including certain new custom
precision slides. There were no significant capital expenditure commitments at July 3,
2004. 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 and our new office showroom in Chicago.

Capital
spending  declined in fiscal 2004 and 2003, due to the fact that we believe that our
investments made in earlier years in 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 $4.0 million in fiscal 2005, as investments
will be focused on bringing new products and product enhancements to our customers. The
cost to complete the items classified as construction in progress at July 3, 2004 was
estimated to be approximately $919,000, which will be derived from cash flows from
operations or from the revolving credit facility.

Cash Flows Provided by
(Used for) Financing Activities

Cash
flows utilized for financing activities were $2.4 million in fiscal 2004, compared to cash
provided by financing activities of $1.1 million in fiscal 2003, and $7.8 million of cash
flow used in fiscal 2002. The use of funds in fiscal 2004 reflected the ongoing costs of
the Companys dividend program, which were only partially offset by $.5 million of
borrowings under the revolving credit facility. The generation of funds in fiscal 2003
reflects borrowings under the revolving credit facility. The use of funds in fiscal 2002
reflects the repayment of $3.8 million of debt under the revolving credit facility along
with the repurchase of $1.2 million of our common stock.

KV
has a stock repurchase program, under which it purchased no shares in fiscal 2004 and
2,280 shares during fiscal 2003 with the price per share ranging from approximately $9 to
$11. At July 3, 2004, KV is authorized to repurchase an additional 272,202 shares.

On
August 28, 2003, the Company entered into a new $35 million revolving credit facility that
matures on November 1, 2006. The new three-year revolving credit facility is unsecured and
replaces a $45 million credit facility that would have expired in 2004. 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 new 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 3, 2004, KV was in compliance with all of the covenants of the revolving credit
agreement.

The
outstanding debt at July 3, 2004 was $24.5 million, compared to $24.1 million at fiscal
2003 year-end. The debt to total capital ratio improved to 40.0% at July 3, 2004, from
40.9% at June 28, 2003. Note that KV defines total capital as the sum of long-term debt
plus total stockholders equity. Management continues to manage the Company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 2005.

# Legal Contingencies

The
Canada Customs and Revenue Agency (CCRA) has performed an audit of the
Companys sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary
results from a joint review by the Company and its customs broker indicate that the
Company may be liable for certain customs transactions, however, the amount of any such
potential liability is unknown at this time. The Company 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 the
Companys earnings.

13

---



The
Company was sued in the Kent County, Michigan Circuit Court in 1997 by a former employee
seeking additional benefits under an executive retirement plan. The Circuit Court ruled in
favor of the plaintiff, but in June 2002, the Circuit Court was reversed on the
Companys appeal to the Michigan Court of Appeals. A delayed
request for leave to appeal to the Michigan Supreme Court which the plaintiff filed was denied during
the fourth quarter of fiscal 2003.  In August 2002, the plaintiff
filed a lawsuit seeking these retirement benefits in the Federal District Court for the
Western District of Michigan. The
Company moved to dismiss the federal litigation based on the statute of limitations. In
September 2003, the Federal District Court dismissed the litigation. In October 2003, the
plaintiff appealed the dismissal to the Sixth Circuit Court of Appeals.  That appeal is pending.
Management believes that any
liability resulting from this case will not have a material adverse affect on the
Companys earnings.

We
are 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 $455,000 at July 3, 2004, the ultimate
liability for these matters will not have a material adverse effect on our financial
position or the results of our 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 3, 2004.

|                                   | 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.

# 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
January 2004, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) FAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003". This statement permits a sponsor of a postretirement health care plan that
provides a prescription drug benefit to make a one-time election to defer accounting for
the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act). The Act, signed into law in December 2003, introduces a
prescription drug benefit under Medicare (Medicare part D) and a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. Given the cap on postretirement benefits
introduced in fiscal 2002, the Act is not expected to have a material impact on the
Companys accumulated postretirement benefit obligation or the net postretirement
benefit costs, however, the Company has elected to defer the adoption of FSP FAS 106-2
until the specific authoritative accounting guidance for the federal subsidy is issued.

14

---



In
December 2003, the FASB issued a revision of Statement of Financial Accounting Standards
(SFAS) No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits, to improve financial disclosures for defined benefit plans.
The revised SFAS requires that companies provide more details about their plan assets,
benefit obligations, cash flows, benefit costs and other relevant information. The Company
is now required to provide additional disclosures, including, but not limited to, a
breakdown of plan assets by category, a description of investment policies and strategies
and target allocation percentages for these asset categories. The Company adopted the
revised disclosure provisions in the third quarter of fiscal 2004.

In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. It
is effective for contracts entered into or modified after June 30, 2003, except as
stated within the statement, and should be applied prospectively. This statement had no
material effect on the consolidated financial statements.

We
adopted SFAS No. 142 in the first quarter of fiscal 2003. Application of the
nonamortization provisions of SFAS No. 142 resulted in an increase in net earnings of
approximately $237,000 ($0.05 per diluted share) in both fiscal 2004 and 2003. We
performed the required impairment tests of goodwill as of the first day of each fiscal
year and determined that the recorded goodwill was not impaired.

# Forward-Looking
Statements

This
report contains certain forward-looking statements, which involve risks and uncertainties.
When used in this report, the words believe, anticipate,
think, intend, goal, forecast,
expect and similar expressions identify forward-looking statements.
Forward-looking statements include, but are not limited to, statements concerning new
product introductions, future revenue growth, gross margin improvement and the impact of
steel price increases. Such statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially from those expressed or implied by such
forward-looking statements. Readers are cautioned not to place undue reliance on those
forward-looking statements, which speak only as of the date of this report.

Risk
Factors include, but are not limited to, uncertainties relating to changes in demand for
our products; the cost and availability of materials, including but not limited to steel;
changes in trading policies or import and export regulations; fluctuation of foreign currency
exchange rates; changes in duties, tariffs,
quotas or applicable assessments; the ability to secure and protect patents and other
intellectual property; foreign competition; loss of significant customers; and changes
in the general U.S. economy. These matters are representative of the Risk Factors that
could cause a difference between an ultimate actual outcome and a forward-looking
statement.

15

---



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

The
Company 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. The Company 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 the Companys variable rate revolving credit agreement.
The derivative was recognized as a liability on the balance sheet at its fair value of
$1,391,133 at July 3, 2004 and $2,554,980 at June 28, 2003.

A
discussion of the Company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 the Companys fixed maturity investments as
of July 3, 2004 and June 28, 2003 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 the Company on
the portion of the debt covered by the interest rate swap.

|Fiscal 2004:Liability                                 | Amount | Maturity Date
|----------------------------------------------------- | ------ | -------------
|Variable rate revolving credit                        |        |              
|agreement                                             |        | $24,500,000  
|First $20,000,000 at an interest rate of 1.315%       |       
|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   
|                                                     
|Fiscal 2003:                                          |       
|Liability                                             |       
|Variable rate revolving credit                        |       
|agreement                                             |        | $24,000,000  
|First $20,000,000 at an interest rate of 1.28%        |       
|plus weighted average credit spread of .75%           |       
|Amounts in excess of $20,000,000 had an interest rate |       
|ranging from 2.00% to 2.22%                           |       
|                                                     
|Interest Rate Swaps                                   |       
|Notional amount                                       |        | $20,000,000  
|Pay fixed/Receive variable                            |       
|at 3 month LIBOR - 1.28%                              |       
|Pay fixed interest rate - 6.25%                       |       
|Fair value - liability                                |        | $2,554,980   

16

---



The
Company 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 the Companys sales,
gross profits and retained earnings. The Company attempts to minimize currency exposure
risk through working capital management. The Company 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 the Company and its subsidiaries as of
July 3, 2004 and June 28, 2003, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three years in the period ended
July 3, 2004, the notes thereto, and the report of independent registered public
accounting firm.

18

---



|Knape & Vogt Manufacturing Company and Subsidiaries
                                Consolidated Statements of Operations
|-------------------------------------------------------------------------------------------------------------------------
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|
|                                                                                                                         
|Net Sales                                                                                                                
|Cost of Sales                                                                                                            
|                                                                                                                         
|Gross Profit                                                                                                             
|                                                                                                                         
|Expenses                                                                                                                 
|Selling                                                                                                                  
|Administrative and general                                                                                               
|Other                                                                                                                    
|                                                                                                                         
|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.

19

---



# Knape & Vogt
Manufacturing Company and SubsidiariesConsolidated Balance Sheets

---

|                                                               | July 3, 2004 | June 28, 2003
|-------------------------------------------------------------- | ------------ | -------------
|                                                               |             
|Assets                                                         |              |              
|Current Assets                                                 |             
|Cash and equivalents                                           |              | $  5,278,869 
|Accounts receivable, less allowances of $673,000 and $803,000, |             
|respectively                                                   |              | 19,959,442   
|Inventories, including inventory on consignment at customer    |             
|locations of $3,292,297 and $3,610,427, respectively           |              | 23,955,271   
|Prepaid expenses and other current assets                      |              | 950,911      
|                                                               |             
|Total Current Assets                                           |              | 50,144,493   
|                                                               |             
|Property and Equipment                                         |             
|Land and improvements                                          |              | 1,175,614    
|Buildings                                                      |              | 16,589,054   
|Machinery and equipment                                        |              | 66,043,000   
|Construction in progress                                       |              | 407,863      
|                                                               |             
|                                                               |              | 84,215,531   
|Less accumulated depreciation                                  |              | 55,531,817   
|                                                               |             
|Net Property and Equipment                                     |              | 28,683,714   
|                                                               |             
|Goodwill, net of accumulated amortization of $1,099,000        |              | 4,772,837    
|                                                               |             
|Prepaid Pension Cost                                           |              | 12,088,937   
|                                                               |             
|Other Assets                                                   |              | 561,345      
|                                                               |             
|                                                               |              | $96,251,326  
|                                                               |             

See accompanying notes to consolidated financial statements.

20

---



# Knape & Vogt Manufacturing
Company and SubsidiariesConsolidated Balance Sheets

---

|                                                                      | July 3, 2004 | June 28, 2003
|--------------------------------------------------------------------- | ------------ | -------------
|                                                                      |             
|Liabilities and Stockholders' Equity                                  |              |              
|Current Liabilities                                                   |             
|Accounts payable                                                      |              | $ 11,299,675 
|Accruals:                                                             |             
|Income taxes                                                          |              | 1,829,986    
|Accrued compensation                                                  |              | 3,005,614    
|Accrued customer rebates and cooperative advertising                  |              | 1,975,397    
|Other                                                                 |              | 4,695,036    
|                                                                      |             
|Total Current Liabilities                                             |              | 22,805,708   
|Other Retirement Benefits                                             |              | 4,753,797    
|Long-Term Debt and Capital Leases                                     |              | 24,538,864   
|Deferred Income Taxes                                                 |              | 5,896,000    
|Interest Rate Swap Agreement and Other Long-Term Liabilities          |              | 1,432,739    
|                                                                      |             
|Total Liabilities                                                     |              | 59,427,108   
|                                                                      |             
|Stockholders' Equity                                                  |             
|Stock:                                                                |             
|Common, $2 par - 6,000,000 shares authorized; 2,331,860 and 2,293,433 |             
|issued and outstanding                                                |              | 4,663,720    
|Class B common, $2 par - 4,000,000 shares authorized; 2,184,489 and   |             
|2,222,202 issued and outstanding                                      |              | 4,368,978    
|Preferred - 2,000,000 shares authorized and unissued                  |              | -            
|Additional paid-in capital                                            |              | 7,544,749    
|Unearned stock grant                                                  |              | (94,500      
|Accumulated other comprehensive loss:                                 |             
|Derivative instrument                                                 |              | (904,133     
|Minimum SERP adjustment                                               |              | (1,047,874   
|Minimum pension adjustment                                            |              | (250,015     
|Foreign currency translation adjustment                               |              | 396,156      
|                                                                      |             
|Total accumulated other comprehensive loss                            |              | (1,805,866   
|Retained earnings                                                     |              | 22,147,137   
|                                                                      |             
|Total Stockholders' Equity                                            |              | 36,824,218   
|                                                                      |             
|                                                                      |              | $ 96,251,326 
|                                                                      |             

See accompanying notes to consolidated financial statements.

21

---



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

---

|                                        | Common stock | Additionalpaid-incapital | Restrictedstockgrants | Accumulatedothercomprehensiveincome (loss) | Retainedearnings | Total    |  
|--------------------------------------- | ------------ | ------------------------ | --------------------- | ------------------------------------------ | ---------------- | -------- | -
|                                        |             
|Balance, June 30, 2001                  |              | $ 9,235,682              |                       | $ 8,502,727                                |                  | $(94,500 | )
|Comprehensive income:                   |             
|Net income                              |              | -                        |                       | -                                          |                  | -        |  
|Foreign currency translation adjustment |              | -                        |                       | -                                          |                  | -        |  
|Minimum SERP adjustment, net of         |             
|deferred taxes of $4,000                |              | -                        |                       | -                                          |                  | -        |  
|Loss on derivative instrument, net      |             
|of Deferred taxes of $371,000           |              | -                        |                       | -                                          |                  | -        |  
|                                        |              |                         
|Other comprehensive loss                |              | -                        |                       | -                                          |                  | -        |  
|                                        |              |                          |                       |                                           
|Comprehensive income                    |              | -                        |                       | -                                          |                  | -        |  
|                                        |              |                          |                       |                                           
|Cash dividends                          |              | -                        |                       | -                                          |                  | -        |  
|Restricted stock issued (817 shares)    |              | 1,634                    |                       | 8,979                                      |                  | -        |  
|Repurchase and retirement of            |             
|shares of common stock (101,506         |             
|shares)                                 |              | (203,012                 | )                     | (961,644                                   | )                | -        |  
|                                        |             
|Balance, June 29, 2002                  |              | 9,034,304                |                       | 7,550,062                                  |                  | (94,500  | )
|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                     | )                     | (601                                       | )                | -        |  
|Restricted stock issued (813 shares)    |              | 1,626                    |                       | 8,612                                      |                  | -        |  
|Repurchase and retirement of            |             
|shares of common stock (2,280           |              | (4,560                   | )                     | (19,389                                    | )                | -        |  
|shares)                                 |             
|                                        |             
|Balance, June 28, 2003                  |              | 9,031,270                |                       | 7,538,684                                  |                  | (94,500  | )
|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 loss                |              | -                        |                       | -                                          |                  | -        |  
|                                        |              |                          |                       |                                           
|Comprehensive income                    |              | -                        |                       | -                                          |                  | -        |  
|                                        |              |                         
|Cash dividends                          |              | -                        |                       | -                                          |                  | -        |  
|Restricted stock issued (714 shares)    |              | 1,428                    |                       | 6,065                                      |                  | -        |  
|                                        |             
|Balance, July 3, 2004                   |              | $ 9,032,698              |                       | $ 7,544,749                                |                  | $(94,500 | )
|                                        |             

See accompanying notes to consolidated financial statements.

22

---



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

---

|Year Ended                                                  | July 3,2004 | June 28,2003 | June 29,2002
|----------------------------------------------------------- | ----------- | ------------ | ------------
|                                                            |            
|Operating Activities                                        |             |              |             
|Net income                                                  |             | $ 3,734,932  |             
|Adjustments to reconcile net income to net cash provided by |            
|operating activities:                                       |            
|Depreciation of property and equipment                      |             | 6,306,890    |             
|Amortization of other assets                                |             | 93,468       |             
|Deferred income taxes                                       |             | (370,106     | )           
|Increase (decrease) in supplemental retirement benefits     |             | (23,709      | )           
|(Increase) decrease in prepaid pension cost                 |             | 414,554      |             
|Loss on disposal of property and equipment                  |             | 1,450        |             
|Other                                                       |             | 42,098       |             
|Changes in operating assets and liabilities:                |            
|Accounts receivable                                         |             | (3,107,525   | )           
|Inventories                                                 |             | (4,976,215   | )           
|Other current assets                                        |             | (218,626     | )           
|Accounts payable                                            |             | 692,252      |             
|Accruals                                                    |             | 2,319,201    |             
|                                                            |            
|Net cash provided by operating activities                   |             | 4,908,664    |             
|                                                            |            
|Investing Activities                                        |            
|Additions to property and equipment                         |             | (1,199,398   | )           
|Proceeds from sales of property and equipment               |             | 53,975       |             
|Other, net                                                  |             | (28,114      | )           
|                                                            |            
|Net cash used for investing activities                      |             | (1,173,537   | )           
|                                                            |            
|Financing Activities                                        |            
|Dividends paid                                              |             | (2,849,192   | )           
|Principal payments on capital lease obligations             |             | (13,741      | )           
|Borrowings/(repayments) on long-term debt                   |             | 500,000      |             
|Repurchase and retirement of common stock                   |             | -            |             
|                                                            |            
|Net cash provided by (used for) financing activities        |             | (2,362,933   | )           
|                                                            |            
|Effect of Exchange Rate Changes on Cash                     |             | 60,062       |             
|                                                            |            
|Net Increase (Decrease) in Cash and Equivalents             |             | 1,432,256    |             
|Cash and equivalents, beginning of year                     |             | 3,846,613    |             
|                                                            |            
|Cash and equivalents, end of year                           |             | $ 5,278,869  |             
|                                                            |            
|Supplemental Information:                                   |            
|Interest paid                                               |             | $ 1,628,923  |             
|Income taxes paid                                           |             | 934,411      |             
|                                                            |            

See accompanying
notes to consolidated financial statements.

23

---



# Knape & Vogt
Manufacturing Company and Subsidiaries

# Notes to Consolidated
Financial Statements

|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.
|------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.  Summary of Significant Accounting Policies | Principles of Consolidation
|---------------------------------------------- | ---------------------------

| | The
consolidated financial statements include the accounts of Knape & Vogt Manufacturing
Company and its wholly owned domestic and foreign subsidiaries. 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 year ended July 3, 2004 contained 53 weeks and the fiscal years ended
June 28, 2003 and June 29, 2002 each contained 52 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 does provide 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
Translation
| | ----------------------------

| | The
accounts of the foreign subsidiary are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52. Assets and liabilities are
translated at year-end exchange 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. Foreign currency exchange gains were
$149,398 in fiscal 2004, $6,432 in fiscal 2003 and $30,335 in fiscal 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

---



# 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 3, 2004 and June
28, 2003, because of the short-term nature of these financial instruments. The estimated
carrying value of long-term debt approximates its fair value at July 3, 2004 and June 28,
2003 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 $1,391,133 at July 3,
2004 and $2,554,980 at June 28, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 3, 2004 was approximately $919,000. 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

25

---



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

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Goodwill and
Intangible Assets
| | ------------------------------

| | Goodwill
represents the excess of the purchase price over the fair value of net tangible and
identifiable intangible assets of acquired businesses and effective June 30, 2002, is not
amortized, however, in prior years it was amortized using the straight-line method over
periods ranging from 15 to 40 years. 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
| | ------------

| | The
Company utilizes the liability method to account for deferred income taxes by applying
statutory tax rates in effect at the balance sheet date to differences between the
financial reporting and tax basis of assets and liabilities. The resulting deferred tax
liabilities or assets are adjusted to reflect changes in tax laws or rates by means of
charges or credits to income tax expense.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. Advertising expense, including cooperative advertising, was $1,305,000 in 2004,
$976,000 in 2003 and $1,889,000 in 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

---



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

| | 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:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                | 2004 | 2003       | 2002
| | ------------------------------ | ---- | ---------- | ----
| |                                |     
| | Numerators:                    |      |            |     
| | Numerator for both basic and   |     
| | diluted EPS, net income        |      | $3,734,932 |     
| |                                |     
| | Denominators:                  |     
| | Denominator for both basic and |     
| | diluted EPS, weighted-average  |     
| | common shares outstanding      |      | 4,516,245  |     
| |                                |     

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   | 2004     |       | 2003 |         | 2002
| | ----------------- | -------- | ----- | ---- | ------- | ----
| |                   |         
| | Exercise $     13 | Price.64 | 6,050 |      | 6,875   |     
| | $     14          | .09      | 7,700 |      | 8,525   |     
| | $     16          | .74      | -     |      | 6,962   |     
| | $     18          | .18      | 5,500 |      | 6,325   |     
| | $     18          | .41      | -     |      | 130,240 |     
| | $     18          | .48      | -     |      | 206,183 |     
| | $     26          | .54      | -     |      | 61,413  |     

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

---



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

| | New Accounting
Standards
| | ------------------------

| | In
January 2004, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) FAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003". This statement permits a sponsor of a postretirement health care plan that
provides a prescription drug benefit to make a one-time election to defer accounting for
the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act). The Act, signed into law in December 2003, introduces a
prescription drug benefit under Medicare (Medicare part D) and a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to Medicare Part D. Given the cap on postretirement benefits
introduced in fiscal 2002, the Act is not expected to have a material impact on the
Companys accumulated postretirement benefit obligation or the net postretirement
benefit costs, however, the Company has elected to defer the adoption of FSP FAS 106-2
until the specific authoritative accounting guidance for the federal subsidy is issued.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, the FASB issued a revision of Statement of Financial Accounting Standards
(SFAS) No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits, to improve financial disclosures for defined benefit plans.
The revised SFAS requires that companies provide more details about their plan assets,
benefit obligations, cash flows, benefit costs and other relevant information. The Company
is now required to provide additional disclosures, including, but not limited to, a
breakdown of plan assets by category, a description of investment policies and strategies
and target allocation percentages for these asset categories. The Company adopted the
revised disclosure provisions in the third quarter of fiscal 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company adopted SFAS No. 142 in the first quarter of fiscal 2003. The Companys
reported net income and earnings per share information, exclusive of goodwill amortization
required under previous accounting standards on an after tax basis is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                              | Fiscal 2004 | Fiscal 2003    | Fiscal 2002
| | ---------------------------- | ----------- | -------------- | -----------
| |                              |             |               
| | Reported net income          |             | $3,734,932     |            
| | Add:  Goodwill amortization, |            
| | net of income taxes          |             | -              |            
| |                              |             |               
| | Adjusted net income          |             | $3,734,932     |            
| |                              |             |               
| | Adjusted EPS                 |             | $         0.83 |            
| |                              |             |               

| | The
Company has performed the required impairment tests of goodwill and determined that the
recorded goodwill is not impaired.
| | ------------------------------------------------------------------------------------------------------------------------------

28

---



# 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.
| | --------------------------------------------------------------------------------------------------

|3.  Impairment/
Severance | During
2003, the Company recorded $271,325 pre-tax of severance costs in other expense on the
consolidated statement of operations, primarily related to the resignation of two of its
executive officers in August 2002.
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
fiscal 2002, the Company recorded an impairment charge of $690,000 in accordance with SFAS
144 for certain precision drawer slide tooling. While the Company will continue to produce
the drawer slides, the estimated future cash flows associated with sales of this
particular product line were less than the cost of the tooling recorded.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
fiscal 2002, the Company also decided to reduce its workforce in its Grand Rapids,
Michigan facility. Those reductions were committed to by top management prior to the
fiscal year end and occurred during the month of July 2002. The Company recorded $245,000
in severance costs at June 29, 2002 in other expense on the consolidated statement of
operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.  Inventories | Inventories are
valued at the lower of FIFO (first-in,                first-out) cost or market.
Inventories are summarized as follows:
|--------------- | ---------------------------------------------------------------------------------------------------------------------------------------

| |                   | July 3, 2004 | June 28, 2003
| | ----------------- | ------------ | -------------
| |                   |             
| | Finished products |              | $15,256,160  
| | Consignment       |              | 3,292,297    
| | Work in process   |              | 2,062,060    
| | Raw materials     |              | 3,344,754    
| |                   |             
| |                   |              | $23,955,271  
| |                   |             

|5.  Warranty | The
Company provides a limited lifetime warranty on most                products sold.
Depending on the product, the lifetime warranty is generally                defined in 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 issues replacement products 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:
|------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---



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

| |                                   | July 3, 2004 | June 28, 2003
| | --------------------------------- | ------------ | -------------
| |                                  
| | Accrued warranty costs at the     |              |              
| | beginning of the year             |              | $ 275,000    
| | Payments made for warranty costs  |              | (216,000     
| | Accrual for product warranty      |              | 228,000      
| |                                  
| | Accrued warranty costs at the end |             
| | of the year                       |              | $ 287,000    
| |                                  

|6.  Long-Term
Debt | Long-term debt obligations are summarized as follows:
|------------------ | -----------------------------------------------------

| |                            | July 3, 2004 | June 28, 2003
| | -------------------------- | ------------ | -------------
| |                            |             
| | Revolving credit agreement |              | $ 24,500,000 
| | Capital lease obligations  |              | 52,605       
| | Less: Current portion of   |             
| | capital lease obligation   |              | (13,741      
| |                            |             
| |                            |              | $ 24,538,864 
| |                            |             

| | On
August 28, 2003, the Company entered into a new $35 million revolving credit facility that
matures on November 1, 2006. The new three-year revolving credit facility is unsecured and
replaces a $45 million credit facility that would have expired in 2004. 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 new 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 3, 2004, there was a $24,500,000 balance outstanding under this agreement. The
interest rate on the first $20,000,000 of the outstanding balance was 1.315% 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 $4,500,000 was 1.369%, 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 3, 2004, 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 3, 2004, was in compliance with these covenants.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7.  Derivative Financial Instruments | The Company has entered into an interest rate swap                agreement
designated as a  partial hedge of the Companys
               variable rate revolving credit agreement. The  purpose of this swap is to
fix the interest rate on the variable rate debt and reduce the exposure to interest rate
fluctuations. At July 3, 2004, the notional amount of the swap was $20,000,000. 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 1.31% at July 3, 2004.
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 3, 2004, 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---



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

| | The
Company has recognized an after-tax gain of $756,847 in fiscal 2004 and loss of $619,822
in fiscal 2003 in other comprehensive income on the swap agreement. The gain/(loss) is
made up of the following components:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                        | July 3, 2004Pre-Tax | After-Tax   | June 28, 2003 | After-Tax    | June 29, 2002 | After-Tax
| | ---------------------- | ------------------- | ----------- | ------------- | ------------ | ------------- | ---------
| |                        |                    
| | Change in fair value   |                     |             |               |              |               |          
| | of interest rate swap  |                     | $ 2,177,697 |               | $ 1,415,850  |               | $(15,938 
| | Settlement to interest |                    
| | expense                |                     | (1,013,850  | )             | (659,003     | )             | (936,884 
| |                        |                     |            
| | Other comprehensive    |                    
| | income                 |                     | $ 1,163,847 |               | $    756,847 |               | $(952,822
| |                        |                     |            

|8.  Lease Commitments | The Company leases certain real property and equipment
               under various lease agreements. 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 
| | ----------------------------------------- | --------- | --------
| |                                           |          
| | 2005                                      |           | $134,966
| | 2006                                      |           | 101,142 
| | 2007                                      |           | 80,323  
| | 2008                                      |           | 77,588  
| | 2009 and thereafter                       |           | 472,061 
| |                                           |          
| | Total minimum payments                    |           | $866,080
| | Less - interest on capital leases         |           | -       
| |                                           |          
| | Total principal payable on capital leases |          
| | (included in Note 6)                      |           |         
| |                                           |          

| | Rent expense
 under  all  operating  leases  was  approximately   $1,273,000,
                                     $1,017,000 and $868,000 in fiscal 2004, 2003 and
2002, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 3, 2004                and June 28, 2003 held a combined total of 284,637 shares of
the Companys                Class B common stock.
|------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys Board of Directors annually approves contributions to the defined
contribution plans. Expense for the discretionary profit-sharing plan amounted to
$700,666, $667,192 and $750,261 in fiscal 2004, 2003 and 2002, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. During fiscal 2002, the Company amended the plan to place a cap on the
Company paid portion of health-care premiums for retirees.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company also provides a 401(k) plan for all of its employees. Employees may contribute up
to 100 percent of their pay up to Internal Revenue Service limits. For all 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 $218,481,
$225,473, and $246,229 in fiscal 2004, 2003 and 2002, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31

---



# 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:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                 | Penison 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                                                   |                  |               |                                   
| | Plan amendment                                                  |                  |               |                                   
| | Other                                                           |                  |               |                                   
| |                                                                
| | Benefit obligation 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                                                   |                  |               |                                   
| |                                                                
| | 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 consolidate balance sheet consist of: |                  |              
| | Prepaid pension                                                 |                  |              
| | cost                                                            |                  |               | $                                 
| | Other retirement                                                |                  |              
| | benefits                                                        |                  |               |                                   
| | Accumulated other                                               |                  |              
| | comprehensive                                                   |                  |              
| | income                                                          |                  |               |                                   
| |                                                                
| | Net amount recognized                                           |                  |               | $                                 
| |                                                                

32

---



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

| |                    | Pension Benefits | SERP Benefits | PostretirementHealth-Care Benefits
| | ------------------ | ---------------- | ------------- | ----------------------------------
| |                    |                 
|
| |                    |                 
| | Discount rate      |                  | 6             | .25%                              
| | Expected return on |                 
| | plan assets        |                  | 8             | .0%                               

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

| |                           | Pension Benefits | SERPBenefits
| | ------------------------- | ---------------- | ------------
| |                           |                 
|
| |                           |                 
| | Service cost              |                  | $    492,019
| | Interest cost             |                  | 1,101,529   
| | Expected return on        |                 
| | plan assets               |                  | (1,771,387  
| | Net amortization          |                  | 681,875     
| |                           |                 
| | Net periodic benefit cost |                  | $    504,036
| |                           |                 

| |                           | PostretirementHealth-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 9.0% for 2004 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:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | One-Percentage Point                    | Increase | Decrease
| | --------------------------------------- | -------- | --------
| |                                         |         
| | Effect on total of service and interest |          |         
| | cost components                         |          | $  1,628
| | Effect on postretirement health-care    |         
| | benefit obligation                      |          | $29,347 

| | 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                | 
| |                      | 

33

---



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

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 $189,000 to its defined benefit pension plan, $324,000 to
its SERP plan and $203,000 to its other post retirement benefit plan in fiscal 2005. Our
estimated future benefit payments under our benefit plans are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |           | 
| | --------- | 
|
| |           | 
| | 2005      | 
| | 2006      | 
| | 2007      | 
| | 2008      | 
| | 2009      | 
| | 2010-2014 | 
| |           | 

|10.  Income Taxes | Income tax expense (benefit) consists of:
|----------------- | -----------------------------------------

| | Year Ended               | July 3,2004 | June 28,2003 | June 29,2002
| | ------------------------ | ----------- | ------------ | ------------
| |                          |            
| | Current:                 |             |              |             
| | United States            |             | $ 1,991,267  |             
| | Foreign, state and local |             | 437,942      |             
| |                          |            
| | Total current            |             | 2,429,209    |             
| |                          |            
| | Deferred:                |            
| | United States            |             | (638,000     | )           
| | Foreign                  |             | (100,942     | )           
| | State and local          |             | 100,000      |             
| |                          |            
| | Total deferred           |             | (638,942     | )           
| |                          |            
| | Income tax expense       |             | $ 1,790,267  |             
| |                          |            

34

---



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

| | The
difference between the federal statutory tax rate and the effective tax rate on continuing
operations was as follows:
| | -------------------------------------------------------------------------------------------------------------------------

| | Year Ended                   | July 3,2004 | June 28,2003 | June 29,2002
| | ---------------------------- | ----------- | ------------ | ------------
| |                              |            
| | Federal income taxes at the  |             |              |             
| | statutory rate               |             | $ 1,879,000  |             
| | Foreign earnings taxed at    |            
| | foreign statutory rate       |             | -            |             
| | State and local income taxes |             | 22,000       |             
| | Tax audit settlement         |             | (169,000     | )           
| | Utilization of previously    |            
| | disallowed loss              |             | -            |             
| | Other                        |             | 58,267       |             
| |                              |            
| | Income tax expense           |             | $ 1,790,267  |             
| |                              |            

| | 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 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 3, 2004                             | June 28, 2003
| | ---------------------------------------- | -------------
| |                                          |              
| | Property and equipment                   |              
| | Pension accrual                          |              
| | Supplemental retirement plan             |              
| | Benefit related accruals                 |              
| | Inventory reserves                       |              
| | Rebates, advertising and royalty accrual |              
| | Derivative instrument                    |              
| | Other                                    |              
| |                                          |              
| |                                          |              
| |                                          |              

| | No
provision has been made for taxes that may result from future remittances of $3.5 million in
undistributed earnings of foreign subsidiaries as of July 3, 2004 because it is expected
that such earnings will be reinvested overseas indefinitely. Determination of the amount
of any unrecognized deferred income tax liability on earnings not remitted is not
practicable.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

---



# Knape & Vogt
Manufacturing Company and SubsidiariesNotes to Consolidated
Financial Statements

| | Under
the Companys 1997 Stock Incentive plan, up to 660,000 shares of the Companys
common stock are available for issuance. Issuance can be in the form of stock options or
restricted stock; however, no more than 55,000 shares can be issued as restricted stock.
Stock options can be granted as incentive stock options or nonqualified stock options. The
number of shares of common stock subject to an option granted to a participant under this
plan is determined based on the amount of the participants election under the
Companys bonus plan. Each participant may elect to receive options by electing to
forego a portion of the cash bonus that may be earned by the participant, with the option
price determined in accordance with the plan. The exercise price per share of common stock
purchasable under an option is a single fixed exercise price equal to 100% of the fair
market value of the common stock at the award date increased by a fixed percentage (based
on U.S. Treasury Securities plus 2% less a projected dividend yield) compounded annually
over the term of the option. In general, the options vest three years after the date the
option was granted and expire five years after the grant date. During fiscal 2004, 2003
and 2002, no options were granted to participants.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Executive Compensation Committee, subject to the approval of the Board of Directors,
determines the eligible persons to whom restricted shares are granted and the price (if
any) to be paid by the participant, the conditions under which the participants
interest in the stock may be forfeited and the period of time during which the participant
is not permitted to sell, transfer, pledge, or assign the shares of the restricted stock
awarded under this Plan. Except as provided above, upon issuance of the restricted stock,
the participant will have all the rights of a shareholder with respect to the shares,
including the right to vote them and to receive all dividends and other related
distributions. If termination of employment occurs within the restricted period, all
shares of stock still subject to restriction will vest or be forfeited in accordance with
the terms and conditions established by the Committee.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys CEO has 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 will vest if the Company achieves specific financial
objectives within a five-year performance period. During the performance period, the CEO
may vote and receive dividends on the restricted shares, but the shares are subject to
transfer restrictions and are forfeited if the CEO terminates employment or the Company
does not achieve its financial objectives.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transactions under
the plans are as follows:
| | --------------------------------------------

|Year Ended                 | July 3,2004 | Weighted-AverageExercisePrice | June 28,2003 | Weighted-AverageExercisePrice | June 29,2002 | Weighted-AverageExercisePrice
|-------------------------- | ----------- | ----------------------------- | ------------ | ----------------------------- | ------------ | -----------------------------
|                           |            
|Options outstanding,       |             |                               |              |                               |              |                              
|beginning of year          |             | 454,023                       |              | $     19                      | .12          | 548,848                      
|Forfeited                  |             | (201,090                      | )            | $     20                      | .92          | (94,825                      
|                           |            
|Options outstanding at end |            
|of year                    |             | 252,933                       |              | $     17                      | .78          | 454,023                      
|                           |            
|Options exercisable at end |            
|of year                    |             | 225,433                       |              | $     18                      | .19          | 220,340                      
|                           |            
|Options available for      |            
|grant, end of year         |             | 443,275                       |              |                               |              | 240,657                      
|                           |            

36

---



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

| | A summary
of stock options outstanding at July 3, 2004 follows:
| | ---------------------------------------------------------------

| | Outstanding     | Exercisable
| | --------------- | -----------
|
| |                
| | $12.50 - $14.50 |            
| | $16.50 - $18.50 |            
| |                 |            
| |                 |            
| |                 |            

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.  Stockholder' 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 under which it purchased no shares in fiscal 2004
and 2,280 shares during fiscal 2003 with the price per share ranging from approximately $9
to $11. At July 3, 2004, the Company has remaining authorization to repurchase an
additional 272,202 shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.  Business Segments | During the fourth quarter of fiscal 2004, management                began
managing the business and reviewing financial information by market
               channel rather than by the previous Home & Commercial Products and
Office                Products divisions.
|---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

---



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

| | The
Office Products division was segregated into two market channels: OEM and dealer. The OEM
market channel sells precision drawer slides, hardware and ergonomic products to original
equipment office furniture manufacturers. The dealer 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 to 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 prior year results by channel is impracticable.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                           | OfficeProducts OEM | OfficeProductsDealer | Consumer | Distributionand Other | Manufacturing | Corporate and Other | ConsolidatedTotal
|------------------------------------------ | ------------------ | -------------------- | -------- | --------------------- | ------------- | ------------------- | -----------------
|                                           |                    |                      |         
|Year Ended July 3, 2004:  Net  sales to    |                    |                      |          |                       |               |                     |                  
|external customers                         |                    | $ 37,278,233         |          | $9,141,248            |               | $38,138,743         |                  
|Operating profit                           |                   
|before administrative                      |                   
|costs, other expenses     and income taxes |                    | (2,521,640           | )        | 1,279,954             |               | 1,402,569           |                  
|Administrative costs,                      |                   
|other expenses                             |                    | -                    |          | -                     |               | -                   |                  
|Income tax expense                         |                   
|(benefit)                                  |                    | -                    |          | -                     |               | -                   |                  
|Net income (loss)                          |                    | (2,314,788           | )        | 1,279,954             |               | 1,402,569           |                  

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

| |                                                   | Office Products | Home andCommercialProducts | Corporateand Other | ConsolidatedTotal
| | ------------------------------------------------- | --------------- | -------------------------- | ------------------ | -----------------
| |                                                   |                 |                            |                   
| | Year Ended June 28, 2003:  Net  sales to external |                 |                            |                    |                  
| | customers                                         |                 | $ 35,659,838               |                    | $89,260,638      
| | Income tax expense                                |                
| | (benefit)                                         |                 | (37,000                    | )                  | 4,751,000        
| | Net income (loss)                                 |                 | (76,048                    | )                  | 7,964,928        

38

---



# Knape & Vogt
Manufacturing Company and SubsidiariesNotes to Consolidated
Financial Statements

| | Geographic
information related to net sales, based on location of our customers is summarized between
domestic and foreign locations as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | Year Ended    | July 3, 2004 | June 28, 2003 | June 29, 2002
| | ------------- | ------------ | ------------- | -------------
| |               |             
| | Net sales:    |              |               |              
| | United States |              | $131,448,845  |              
| | Canada        |              | 12,450,557    |              
| | Other foreign |              | 5,078,340     |              

| | All property
and equipment is held in the United States.
| | --------------------------------------------------------

| | The
Company does not believe that it is dependent upon any single customer, however the
Companys largest customer accounts for approximately 12% of consolidated gross
sales.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14.  Quarterly Results (Unaudited) | The table below sets forth summary unaudited                information on a
quarterly (Unaudited) basis. The first three quarters of                fiscal
2004 each contained 13 weeks and the
fourth quarter contained 14 weeks.
|---------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year Ended July 3, 2004    | 1st Quarter | 2nd Quarter       | 3rd Quarter | 4th Quarter      
| | -------------------------- | ----------- | ----------------- | ----------- | -----------------
| |                            |            
| | Net sales                  |             | $ 36,013,012      |             | $ 34,342,986     
| | Gross profit               |             | $   7,052,310     |             | $   7,160,611    
| | Operating income           |             | $   1,264,086     |             | $   1,253,817    
| | Net income                 |             | $      669,874    |             | $      441,905   
| | Earnings per share-basic   |            
| | and diluted                |             | $            0.15 |             | $            0.10
| | Cash dividend-common stock |             | $          0.165  |             | $          0.165 
| | Cash dividend-Class B      |            
| | common stock               |             | $            0.15 |             | $            0.15
| |                            |            
| | Year Ended June 28, 2003   |             | 1st Quarter       |             | 2nd Quarter      
| |                            |            
| | Net sales                  |             | $ 30,931,347      |             | $ 30,117,755     
| | Gross profit               |             | $   6,987,093     |             | $   6,478,520    
| | Operating income           |             | $      632,164    |             | $   1,659,205    
| | Net income                 |             | $      194,963    |             | $      851,730   
| | Earnings per share-basic   |            
| | and diluted                |             | $            0.04 |             | $            0.19
| | Cash dividend-common stock |             | $          0.165  |             | $          0.165 
| | Cash dividend-Class B      |            
| | common stock               |             | $            0.15 |             | $            0.15
| |                            |            

|15.  Commitments and Contingencies | The Canada Customs and Revenue Agency (CCRA)                has
performed an audit of the   Companys sales to its
               wholly-owned subsidiary, Knape & Vogt Canada.
|---------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Preliminary
results from a joint review by the Company and its customs broker indicate that the
Company may be liable for certain customs transactions, however, the amount of any such
potential liability is unknown at this time. The Company 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 the
Companys earnings.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

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

| | The
Company was sued in the Kent County, Michigan Circuit Court in 1997 by a former employee
seeking additional benefits under an executive retirement plan. The Circuit Court ruled in
favor of the plaintiff, but in June 2002, the Circuit Court was reversed on the
Companys appeal to the Michigan Court of Appeals. A delayed
request for leave to appeal to the Michigan Supreme Court which the plaintiff filed was denied during
the fourth quarter of fiscal 2003.  In August 2002, the plaintiff
filed a lawsuit seeking these retirement benefits in the Federal District Court for the
Western District of Michigan. The
Company moved to dismiss the federal litigation based on the statute of limitations. In
September 2003, the Federal District Court dismissed the litigation. In October 2003, the
plaintiff appealed the dismissal to the Sixth Circuit Court of Appeals.  That appeal is pending.
Management believes that any
liability resulting from this case will not have a material adverse affect on the
Companys earnings.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company 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 $455,000 at July 3, 2004, the ultimate
liability for these matters will not have a material adverse effect on the Companys
financial position or the results of its operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40

---



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 3, 2004 and June 28, 2003 and the related
consolidated statements of operations, stockholders equity, and cash flows for each
of the three years in the period ended July 3, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated
financial statements present fairly, in all material respects, the financial position of
the Company as of July 3, 2004 and June 28, 2003, and the results of its operations and
its cash flows for each of the three years in the period ended July 3, 2004, in conformity
with accounting principles generally accepted in the United States of America.

Our audits also included the
financial statement schedules of Knape & Vogt Manufacturing Company, listed in Item
14. This financial statement schedule is the responsibility of the Companys
management. Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.

Grand Rapids, MichiganAugust
6, 2004

41

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# 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. Our Chief Executive
Officer, William R. Dutmers, and our Vice President of Finance and Treasurer, Leslie J.
Cummings, have reviewed and evaluated the Companys disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of the end of the
period covered by the Annual Report on Form 10-K (the Evaluation Date)), and
have concluded that as of the Evaluation Date, the Companys disclosure controls and
procedures are appropriate and that no changes are required at this time.

| | (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

Directors
of Registrant. Information relating to directors and director nominees of the Company,
contained in the Companys definitive Proxy Statement for its Annual Meeting of
Shareholders to be held October 15, 2004, and filed pursuant to Regulation 14A, is
incorporated herein by reference.

Executive
Officers of Registrant. Information relating to the executive officers of the Company
is included in Part I of this Form 10-K.

# ITEM 11 
EXECUTIVE COMPENSATION

The
information under the captions Summary Compensation Table, Option Grants
in Last Fiscal Year, and Aggregated Stock Option Exercises in Fiscal 2002 and
Year End Option Values, is incorporated herein by reference from the Companys
definitive Proxy Statement for its annual Meeting of Shareholders to be held October 15,
2004, filed pursuant to Regulation 14A.

42

---



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

The
information under the captions Voting Securities and Principal Shareholders
and Directors and Nominees is incorporated herein by reference from the
Companys definitive Proxy Statement for the Companys Annual Meeting of
Shareholders to be held October 15, 2004, filed pursuant to Regulation 14A.

# ITEM 13  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The
information under the caption Directors and Nominees is incorporated herein by
reference from the Companys definitive Proxy Statement for the Companys Annual
Meeting of Shareholders to be held October 15, 2004, 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 15, 2004, filed
pursuant to Regulation 14A.

43

---



# 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.

|                                                        | Page Number in
Form 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 included in this Form 10-K on the page noted.

|                                                             | Page Number in
Form 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 pages 49 and 50 of this Form 10-K Annual
Report.

44

---



(b)     Reports on Form
8-K

Knape
& Vogt filed the following report on Form 8-K during the quarter ended July 3, 2004.

|               |  |               
|-------------- |  | --------------
|Date of Report |  | Filing Date   
|              
|April 22, 2004 |  | April 22, 2004

45

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
StockholdersKnape & Vogt Manufacturing CompanyGrand Rapids, Michigan

We have audited the financial
statements of Knape & Vogt Manufacturing Company as of July 3, 2004 and June 28, 2003,
and for each of the three years in the period ended July 3, 2004, and have issued our
report thereon dated August 6, 2004; such financial statements and report are included in
your 2004 Annual Report to Stockholders and are incorporated herein by reference. Our
audits also included the financial statement schedules of Knape & Vogt Manufacturing
Company, listed in Item 14. This financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

Deloitte & Touche LLPGrand
Rapids, Michigan August 6, 2004

46

---



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

|Column A                  | Column B | Column C    | Column D | Column E     
|------------------------- | -------- | ----------- | -------- | -------------
|                          |         
|
|                          |         
|Year ended July 3, 2004:  |          |             |          |              
|Allowance for:            |         
|Doubtful accounts         |          | $   658,000 |          | $   (54,000  
|Cash discounts            |          | 145,000     |          | 1,753,000    
|                          |          |            
|                          |          | 803,000     |          | 1,699,000    
|Returned goods reserve    |          | 184,000     |          | 1,455,000    
|Warranty reserve          |          | 275,000     |          | 228,000      
|Inventory obsolescence    |          | 1,144,000   |          | 1,203,000    
|                          |         
|Year ended June 28, 2003: |         
|Allowance for:            |         
|Doubtful accounts         |          | $   633,000 |          | $      80,000
|Cash discounts            |          | 122,000     |          | 1,169,000    
|                          |          |            
|                          |          | 755,000     |          | 1,249,000    
|Returned goods reserve    |          | 147,000     |          | 656,000      
|Warranty reserve          |          | 235,000     |          | 238,000      
|Inventory obsolescence    |          | 1,439,000   |          | 213,000      

47

---



# 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.

| | 
| | 
| | 

# Date: August 30, 2004

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below on August 30, 2004, by the following persons on behalf of the registrant in the
capacities indicated.

|                                                                                                                                                                                                                                              | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|/s/ William R. DutmersWilliam R. Dutmers, Chairman of the Board and Chief Executive Officer
/s/ Thomas A. Hilborn
Thomas A. Hilborn, Director

/s/ Richard S. Knape
Richard S. Knape, Director

/s/ Gregory Lambert
Gregory Lambert, Director | 

48

---



# 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 April 23, 1999, filed as Exhibit 3.1 of the Registrants
               Form 10-Q Third Quarter Report for the fiscal year ended June 30, 1999, are
               incorporated by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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) |  | Restricted Share Grant Agreement dated February 1, 2000, between Knape &
               Vogt Manufacturing Company and William R. Dutmers, filed as Exhibit 10.1 of the
               Registrants Form 10-Q Third Quarter Report of the fiscal year ended July
               1, 2000, is incorporated by reference.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

---



|10(k) |  | Stock Option Agreement for Nonqualified Stock Option dated February 1, 2000,
               between Knape & Vogt Manufacturing Company and William R. Dutmers, filed as
               Exhibit 10.2 of the Registrants Form 10-Q Third Quarter Report for the
               fiscal year July 1, 2000, is incorporated by reference.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certificate
of the Vice President of Finance and Treasurer 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.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

---



# EXHIBIT 21

# SCHEDULE OF
SUBSIDIARIES OF KNAPE & VOGT MANUFACTURING COMPANY

Knape & Vogt Canada, Inc.
(organized under the laws of Ontario, Canada)

Feeny Manufacturing Company
(organized under the laws of Michigan)

51

---



# EXHIBIT 23

CONSENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by
reference in Registration Statement Nos. 33-20227, 33-43794 and 33-88212 of Knape &
Vogt Manufacturing Company on Form S-8 of our report dated August 6, 2004, appearing in
this Annual Report on Form 10-K of Knape & Vogt Manufacturing Company for the year
ended July 3, 2004.

DELOITTE & TOUCHE LLP Grand Rapids, MichiganAugust
6, 2004

52

---



# EXHIBIT 31.1

I, William R. Dutmers, certify that:

|1. | I
have reviewed this annual report on Form 10-K of Knape & Vogt
               Manufacturing Company;
|-- | -----------------------------------------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
               material fact or omit to state a material fact necessary to make the
statements                made, in light of the circumstances under which such statements
were made, not                misleading with respect to the period covered by this
report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
               included in this quarterly report, fairly present in all material respects
the                financial condition, results of operations and cash flows of the
registrant as                of, and for, the periods presented in this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as
defined in                Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed
such disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
and presented in this report our conclusions about the effectiveness           of the
disclosure controls and procedures, as of the end of the period covered           by this
report based on such evaluation; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | disclosed
in this report any change in the registrants internal control           over
financial reporting that occurred during the registrants most recent
          fiscal quarter (the registrants fourth fiscal quarter in the case of an
          annual report) that has materially affected, or is reasonably likely to
          materially affect, the registrants internal control over financial
          reporting; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officers and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting,
to the                registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent functions):
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all
significant deficiencies and material weaknesses in the design or operation           of
internal control over financial reporting which are reasonably likely to
          adversely affect the registrants ability to record, process, summarize
and           report financial information; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal control over
          financial reporting;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | 
|----------------------- | 
|Dated:  August 30, 2004 | 

53

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# EXHIBIT 31.2

I, Leslie J. Cummings, certify that:

|1. | I
have reviewed this annual report on Form 10-K of Knape & Vogt
               Manufacturing Company;
|-- | -----------------------------------------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
               material fact or omit to state a material fact necessary to make the
statements                made, in light of the circumstances under which such statements
were made, not                misleading with respect to the period covered by this
report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
               included in this quarterly report, fairly present in all material respects
the                financial condition, results of operations and cash flows of the
registrant as                of, and for, the periods presented in this report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as
defined in                Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | designed
such disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
and presented in this report our conclusions about the effectiveness           of the
disclosure controls and procedures, as of the end of the period covered           by this
report based on such evaluation; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | disclosed
in this report any change in the registrants internal control           over
financial reporting that occurred during the registrants most recent
          fiscal quarter (the registrants fourth fiscal quarter in the case of an
          annual report) that has materially affected, or is reasonably likely to
          materially affect, the registrants internal control over financial
          reporting; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officers and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting,
to the                registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent functions):
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | all
significant deficiencies and material weaknesses in the design or operation           of
internal control over financial reporting which are reasonably likely to
          adversely affect the registrants ability to record, process, summarize
and           report financial information; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal control over
          financial reporting;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | 
|----------------------- | 
|Dated:  August 30, 2004 | 

54

---



# EXHIBIT 32.1

I,
William R. Dutmers, Chairman of the Board and Chief Executive Officer of Knape & Vogt
Manufacturing Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:

|(1) |  | the Annual Report on Form 10-K for the fiscal year ended July 3, 2004 which this
               statement accompanies fully complies with the requirements of Section 13(a) or
               15(d) of the Securities Act of 1934, and
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | the information contained in the Annual Report on Form 10-K for the fiscal year
               ended July 3, 2004 fairly presents, in all material respects, the financial
               condition and results of operations of Knape & Vogt Manufacturing Company.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | 
|----------------------- | 
|Dated:  August 30, 2004 | 

55

---



# EXHIBIT 32.2

I,
Leslie J. Cummings, Vice President of Finance and Treasurer of Knape & Vogt
Manufacturing Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:

|(1) |  | the Annual Report on Form 10-K for the fiscal year ended July 3, 2004 which this
               statement accompanies fully complies with the requirements of Section 13(a) or
               15(d) of the Securities Act of 1934, and
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | the information contained in the Annual Report on Form 10-K for the fiscal year
               ended July 3, 2004 fairly presents, in all material respects, the financial
               condition and results of operations of Knape & Vogt Manufacturing Company.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | 
|----------------------- | 
|Dated:  August 30, 2004 | 

56

---