# UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD
ENDED December 31, 2005

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 of Incorporation)         
       2700 Oak Industrial Drive, NE
          Grand Rapids, Michigan          
 (Address of principal executive offices) | 38-0722920
(IRS Employer Identification No.)
              49505
           (Zip Code)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------

(616) 459-3311 (Telephone Number)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).

YES  [____]        
         NO  [   X   ]

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

YES  [____]        
         NO  [   X   ]

As
of December 31, 2005, Knape & Vogt Manufacturing Company had 2,603,219 shares of
Common Stock outstanding and 1,907,286 shares of Class B Common Stock outstanding.

---



# Forward-Looking
Statements

The
matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements
about the plans, strategies, objectives, goals, estimates, projections, or expectations of
the industry, economics, or the Company itself. Statements, including without limitation,
those related to: future revenue, earnings, margins, growth, cash flows, operating
measurements, tax rates and tax benefits; expected economic returns; projected operating
results or dividend rates; future strength of the Company; future pension costs; future
new product sales; future marketing investments; and market risk are forward-looking
statements. In addition, forward-looking statements are identifiable by words or phrases
indicating that Knape & Vogt or its management, expects,
anticipates, believes, estimates,
forecasts, intends, is likely, projects,
plans, forecasting, optimistic, confident,
opinion, or has goals, objectives, or
strategies, that a particular occurrence or event will,
may, could, should, or will likely result
in the future, that a trend is toward a particular result or occurrence, or
other stated expectations. These statements are not guarantees of future performance and
involve certain risks, uncertainties, and assumptions that are difficult to predict with
respect to timing, extent, and likelihood. Undue reliance should not be placed on these
forward-looking statements, which speak only as of the date of this Quarterly Report.

Besides
risks and uncertainties described in forward-looking statements contained in this
Quarterly Report on Form 10-Q, Annual Report on Form 10-K for the year ended July 2, 2005
and other reports filed with the Securities and Exchange Commission, there are several
important factors that may cause actual results to materially differ, including our
ability to:

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

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

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

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

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

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

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

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

| | Our
operating expenses may be affected by unexpected costs associated with, among other
factors:
| | ------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

Forecasted
sales are subject to competition from many sources. Competitive pressures may result in
unexpected reductions in sales volumes, product prices or service fees. The future costs
for pension benefit costs may be adversely affected by changes in actuarial assumptions
and methods, investment return and the group of participants covered. Our marking and
merchandising programs may not generate the sales we anticipate. Our asset impairment and
exit cost provisions are estimates and actual costs may be more or less than these
estimates.

This
section is intended to provide meaningful cautionary statements for purposes of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Historical
operating results are not necessarily indicative of the results that may be expected in
the future. New risks emerge from time-to-time, that may cause actual results to differ
materially from those contained in any forward-looking statements. This should not be
construed as a complete list of all factors that could adversely affect our expected
consolidated financial position, results of operations or liquidity. The Company
undertakes no obligation to update or change forward-looking statements, whether as a
result of new information, future events, or other information that we obtain after the
date of this Quarterly Report.

2

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIESPART I. FINANCIAL
INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED
BALANCE SHEETS

|                                                      | (Unaudited)Dec. 31, 2005 | July 2, 2005
|----------------------------------------------------- | ------------------------ | ------------
|                                                      |                          |             
|Assets                                                |                          |             
|                                                      |                          |             
|Current assets                                        |                          |             
|Cash and equivalents                                  |                          |             
|Accounts receivable, net                              |                          |             
|Inventories, including consignment inventory (Note 5) |                          |             
|Prepaid expenses and other current assets             |                          |             
|Assets held for sale                                  |                          |             
|                                                      |                          |             
|Total current assets                                  |                          |             
|                                                      |                          |             
|                                                      |                          |             
|Property, plant and equipment                         |                          |             
|Less accumulated depreciation                         |                          |             
|                                                      |                          |             
|Net property, plant and equipment                     |                          |             
|                                                      |                          |             
|                                                      |                          |             
|Goodwill                                              |                          |             
|Prepaid pension cost                                  |                          |             
|Other assets                                          |                          |             
|                                                      |                          |             
|                                                      |                          |             
|                                                      |                          |             
|                                                      |                          |             

See accompanying notes to
condensed consolidated financial statements.

3

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# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIESPART I. FINANCIAL
INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED
BALANCE SHEETS (continued)

|                                                      | (Unaudited)Dec. 31, 2005 | July 2, 2005
|----------------------------------------------------- | ------------------------ | ------------
|                                                      |                          |             
|Liabilities and Stockholders' Equity                  |                          |             
|                                                      |                          |             
|Current liabilities                                   |                          |             
|Accounts payable                                      |                          |             
|Accrued income taxes                                  |                          |             
|Accrued compensation                                  |                          |             
|Accrued customer rebates and cooperative advertising  |                          |             
|Other                                                 |                          |             
|                                                      |                          |             
|Total current liabilities                             |                          |             
|                                                      |                          |             
|Other retirement benefits                             |                          |             
|Long-term debt and capital leases                     |                          |             
|Deferred income taxes                                 |                          |             
|Interest rate swap and other long-term liabilities    |                          |             
|                                                      |                          |             
|Total liabilities                                     |                          |             
|                                                      |                          |             
|                                                      |                          |             
|Stockholders' Equity                                  |                          |             
|Common stock (Common - 2,603,219 and 2,482,663 shares |                          |             
|issued and outstanding, Class B common - 1,907,286    |                          |             
|and 2,027,842 shares issued and outstanding)          |                          |             
|Preferred stock -unissued                             |                          |             
|Additional paid-in capital                            |                          |             
|Accumulated other comprehensive loss                  |                          |             
|Retained earnings                                     |                          |             
|                                                      |                          |             
|Total stockholders' equity                            |                          |             
|                                                      |                          |             
|                                                      |                          |             
|                                                      | $                        | 95,536,408  
|                                                      |                          |             

See accompanying notes to
condensed consolidated financial statements.

4

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENTS OF INCOME(Unaudited)

|                                             | Six Months Ended | Three Months Ended
|-------------------------------------------- | ---------------- | ------------------
|                                             |                  |                   
|                                             |                  |                   
|                                             |                  |                   
|Net sales                                    |                  |                   
|                                             |                  |                   
|Cost of sales                                |                  |                   
|                                             |                  |                   
|Gross profit                                 |                  |                   
|                                             |                  |                   
|Selling, general and administrative expenses |                  |                   
|                                             |                  |                   
|Restructuring and impairment expenses        |                  |                   
|                                             |                  |                   
|Operating income (loss)                      |                  |                   
|                                             |                  |                   
|Other (income) expense, net                  |                  |                   
|                                             |                  |                   
|Interest expense                             |                  |                   
|                                             |                  |                   
|Income (loss) before income taxes            |                  |                   
|                                             |                  |                   
|Income taxes                                 |                  |                   
|                                             |                  |                   
|Net income (loss)                            |                  |                   
|                                             |                  |                   
|Basic earnings per share:                    |                  |                   
|Net income per share                         |                  |                   
|                                             |                  |                   
|Weighted average shares outstanding          |                  |                   
|                                             |                  |                   
|Dilutive earnings per share:                 |                  |                   
|Net income per share                         |                  |                   
|                                             |                  |                   
|Weighted average shares outstanding          |                  |                   
|                                             |                  |                   
|Cash dividend - common stock                 |                  |                   
|                                             |                  |                   
|Cash dividend - Class B common stock         |                  |                   

See accompanying notes
to condensedconsolidated financial statements.

5

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY(Unaudited)

|                                           | Common stock | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Total
|------------------------------------------ | ------------ | -------------------------- | --------------------------------------------- | ----------------- | -----
|                                           |              |                            |                                               |                   |      
|Balance, July 2, 2005                      |              |                            | $                                             | 9,021,010         |      
|                                           |              |                           
|Comprehensive income                       |              |                           
|Net income                                 |              |                            |                                               | -                 |      
|Foreign currency translation    adjustment |              |                            |                                               | -                 |      
|Gain on derivative instrument              |              |                            |                                               | -                 |      
|                                           |              |                            |                                              
|Other comprehensive income                 |              |                            |                                               | -                 |      
|                                           |              |                            |                                               |                   |      
|Comprehensive income                       |              |                            |                                               |                   |      
|                                           |              |                            |                                               |                   |      
|                                           |              |                           
|Cash dividends                             |              |                            |                                               | -                 |      
|                                           |              |                            |                                               |                   |      
|                                           |              |                           
|Balance, December 31, 2005                 |              |                            | $                                             | 9,021,010         |      
|                                           |              |                            |                                               |                   |      
|                                           |              |                            |                                               |                   |      

See accompanying notes to
condensed consolidated financial statements.

6

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS(Unaudited)

|                                                     | Six Months Ended
|---------------------------------------------------- | ----------------
|                                                     |                 
|                                                    
|                                                     |                 
|Operating Activities:                                |                 
|Net income (loss)                                    |                 
|Non-cash items:                                      |                 
|Depreciation and amortization                        |                 
|Deferred income taxes                                |                 
|Change in retirement plan cost                       |                 
|Impairment expenses                                  |                 
|Other                                                |                 
|Changes in operating assets and liabilities:         |                 
|Accounts receivable                                  |                 
|Inventories                                          |                 
|Other current assets                                 |                 
|Accounts payable and accrued expenses                |                 
|                                                     |                 
|Net cash provided by operating activities            |                 
|                                                     |                 
|Investing Activities:                                |                 
|Additions to property, plant and equipment           |                 
|Other                                                |                 
|                                                     |                 
|Net cash used for investing activities               |                 
|                                                     |                 
|Financing Activities:                                |                 
|Dividends paid                                       |                 
|Borrowings on long-term debt                         |                 
|Payments on long-term debt and capital leases        |                 
|                                                     |                 
|Net cash provided by (used for) financing activities |                 
|                                                     |                 
|Effect of Exchange Rate Changes on Cash              |                 
|                                                     |                 
|Net Increase in Cash and Equivalents                 |                 
|                                                     |                 
|Cash and equivalents, beginning of year              |                 
|                                                     |                 
|                                                     |                 
|Cash and equivalents, end of period                  |                 
|                                                     |                 

|Cash Paid During the Period:
|----------------------------
|                            
|                            

See accompanying notes to
condensed consolidated financial statements.

7

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Note 1  Summary of
Significant Accounting Policies

The
condensed consolidated financial statements have been prepared by Knape & Vogt
Manufacturing Company (the Company or KV), without audit, in
accordance with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for
complete financial statements. Management believes that the disclosures made in this
document are adequate so as not to make the information presented misleading. Operating
results for the six-month and three-month periods ended December 31, 2005, are not
necessarily indicative of the results that may be expected for the fiscal year ending July
1, 2006. It is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Companys Form 10-K
for the year ended July 2, 2005.

The
Company utilizes a 52- or 53-week fiscal year, which ends on the Saturday nearest the end
of June. The fiscal year ending July 1, 2006 and July 2, 2005 contain 52 weeks. Both
six-month periods ended on December 31, 2005 and January 1, 2005 contained 26 weeks.

# Foreign Currency

The
functional currency for the Companys foreign subsidiaries is the local currency. The
accounts of the foreign subsidiaries are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52. Current assets and liabilities
are translated at end of period exchange rates, while long-term assets and liabilities are
translated at historical month-end rates. Income and expense accounts are translated at
average exchange rates in effect during the year. Translation adjustments resulting from
fluctuations in the exchange rates are recorded in accumulated other comprehensive income,
a separate component of stockholders equity. Gains and losses from foreign currency
transactions, such as those resulting from the settlement of foreign receivables or
payables are included in the consolidated statements of operations. Foreign currency
exchange net losses were $23,198 and $40,329 for the six months ended December 31, 2005
and January 1, 2005, respectively. For the three months ended December 31, 2005, foreign
currency exchange net gains were $1,165 compared to net losses of $34,176 for the three
months ended January 1, 2005.

# Revenue Recognition

The
Company records revenue when title to the product and risk of ownership passes to the
buyer. Sales are shown net of returns, discounts and any other form of sales incentive,
including cooperative advertising, rebates and merchandising displays. In certain
circumstances, the Company provides buyback programs and markdown allowances to its
customers. These amounts are fixed at the start of the contract period with the customer
and accounted for in accordance with Statement of Position No. 93-7, Reporting on
Advertising Costs and Emerging Issues Task Force Issue 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.

8

---



KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIESNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Stock Based
Compensation

Effective
July 3, 2005, the Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Share-Based Payment. The Company measures the
cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award, with such cost recognized over the applicable
vesting period. No options or other share-based payment have been granted this quarter. In
addition, all options issued in prior years are vested. Therefore, the Company has
incurred no expense for share-based payment during the six-month period ending December
31, 2005. Prior to July 3, 2005, the Company accounted for its stock option plans in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees.

# Note 2  New
Accounting Standards

In
March 2005, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an
Interpretation of FASB Statement No. 143 (FIN 47). Under the Interpretation, an
entity is required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably estimated. Any
uncertainty about the amount and/or timing of future liability should be factored into the
calculation of the liability when sufficient information is available. FIN 47 further
clarifies when an entity would have sufficient information to reasonably estimate the fair
value. The Company must be in compliance no later than the end of the fiscal year ending
after December 15, 2005, although early adoption is encouraged. The Company is required to
adopt FIN 47 by the end of fiscal 2006 and is currently evaluating the impact of FIN 47 on
its consolidated financial statements.

# Note 3  Derivative
Instrument

The
Company has entered into an interest rate swap agreement to modify a portion of the
variable rate revolving line of credit to a fixed rate obligation, thereby reducing the
exposure to market rate fluctuations. The interest rate swap agreement is designated as a
hedge, and effectiveness is determined by matching the principal balance and terms with
that specific obligation. Amounts currently due to or from the interest-rate-swap
counter-party are recorded in interest expense in the period in which they accrue. The
derivative, which has a notional amount of $20,000,000, was recognized as a liability on
the balance sheet at its fair value of $135,962 at December 31, 2005 and $434,763 at July
2, 2005.

Neither
the Company nor the counter-party, which is a major U.S. bank, is required to
collateralize its obligation under the swap. The Company is exposed to loss if the
counter-party should default. At December 31, 2005, the Company had no exposure to credit
loss on the interest rate swap. The Company does not believe that any reasonably likely
change in interest rates would have a material adverse effect on the financial position,
results of operations or cash flows of the Company.

9

---



KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Note 4  Common
Stock and Per Share Information

The
Company has 6,000,000 shares of common stock and 4,000,000 shares of Class B common stock
authorized. All of the stock is $2 par/share.

The
following are the numerators and denominators used in the calculations of basic and
diluted earnings per share (EPS) for each of the periods presented:

|                               | Six Months Ended | Three Months Ended
|------------------------------ | ---------------- | ------------------
|                               |                  |                   
|                               |                  |                   
|Numerator for both basic and   |                  |                   
|diluted EPS, net income (loss) |                  |                   
|                               |                  |                   
|Denominator for basic EPS,     |                  |                   
|weighted-average               |                  |                   
|common shares outstanding      |                  |                   
|                               |                  |                   
|Denominator for diluted EPS,   |                  |                   
|weighted-average               |                  |                   
|common shares outstanding      |                  |                   
|                               |                  |                   

Diluted
EPS excludes stock options where the exercise price exceeded the average market price of
the Companys common stock, since the effect would be anti-dilutive. The options
shown below for January 1, 2005 met this criteria and were excluded.

|               | Dec. 31, 2005 | Jan. 1, 2005
|-------------- | ------------- | ------------
|               |               |             
|Exercise Price |               |             
|$13.64         |               |             
|$14.09         |               |             
|$18.18         |               |             
|$18.48         |               |             

# Note 5  Inventories

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

|                      | Dec. 31, 2005 | July 2, 2005
|--------------------- | ------------- | ------------
|                      |               |             
|Finished products     |               |             
|Consignment inventory |               |             
|Work in process       |               |             
|Raw materials         |               |             
|                      |               |             
|Total                 |               |             
|                      |               |             

10

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KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Note 6 
Restructure and Impairment Expenses

During
the quarter ended January 1, 2005, the Company recognized asset impairment charges of
$115,088 pre-tax and accelerated depreciation of $304,116 pre-tax on certain
manufacturing equipment in accordance with SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.

In
January 2005, the Board of Directors approved a restructuring plan to close its Muncie,
Indiana facility and relocate its operations into existing available space in the Grand
Rapids, Michigan facility. In accordance with SFAS No. 144, the Company recorded pre-tax
impairment charges of $1,663,359, in the second quarter of fiscal 2005, consisting of the
write down of the long-lived assets; including real estate, fixed assets and manufacturing
equipment located in the Muncie facility to the lower of their carrying values or their
estimated fair values, less the disposition costs. The closure of the facility and
relocation of the operations was completed in June 2005.

In
addition, the Company incurred certain qualifying exit costs in connection with the
closure of the Muncie facility, including severance and the relocation of certain
equipment and inventory. All of the charges were recorded in the Manufacturing division of
the Company and were expensed as incurred.

In
July 2005, the Company determined certain assets previously classified as assets held for
sale would be used in production. Accordingly, the values of these assets were written up
by approximately $75,000 to their original net book value and were reclassified from
assets held for sale to property, plant, and equipment and depreciated. Additionally, the
Company re-listed the building held for sale with a new broker. The new broker
re-evaluated the market conditions and reduced the listing price. KV reduced the assets
held for sale for the building by approximately $75,000. Management believes that the
carrying value of the remaining assets held for sale is representative of the amounts that
will be received upon future sale, based upon currently available information.

The
following summarizes the restructuring expenses that were incurred and paid in the six
months ended December 31, 2005. There was no activity for the three months ended December
31, 2005.

|                            | December 31,2005
|--------------------------- | ----------------
|                            |                 
|Severance & stay-on bonuses |                 
|Facility exit costs & other |                 
|                            |                 
|Total                       |                 
|                            |                 

The
following summarizes the restructuring accrual activity for the period ended December 31,
2005.

|                                  | Severance &stay-on bonuses
|--------------------------------- | --------------------------
|                                  |                           
|Accrual balance, July 2, 2005     |                           
|Cash payments                     |                           
|                                  |                           
|Accrual balance December 31, 2005 |                           
|                                  |                           

11

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KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Note 7  Warranty Disclosure

The
Company provides a limited lifetime warranty on most products sold. Depending on the
product and based on historical experience, 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 provides replacement of the
product as the resolution for any warranty claims. Reserves have been established for the
various costs associated with the Companys warranty program. General warranty
reserves are based on historical claims experience and other currently available
information and are periodically adjusted for business levels and other factors. Specific
reserves are established if an issue is identified with the amounts for such reserves
based on the estimated cost to correct the problem. The actual warranty expense could
differ from the estimates made by the Company based on product performance. The following
table presents the changes in the Companys product warranty liability:

|                                              | Six Months Ended | Three Months Ended
|--------------------------------------------- | ---------------- | ------------------
|                                              |                  |                   
|                                              |                  |                   
|                                              |                  |                   
|Accrued warranty costs at beginning of period |                  |                   
|Payments made for warranty costs              |                  |                   
|Accrual for product warranty                  |                  |                   
|                                              |                  |                   
|Accrued warranty costs at end of period       |                  |                   
|                                              |                  |                   

# Note 8 
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.

Comprehensive income and its
components consist of the following:

|                                         | Six Months Ended | Three Months Ended
|---------------------------------------- | ---------------- | ------------------
|                                         |                  |                   
|                                         |                  |                   
|Net income (loss)                        |                  |                   
|Other comprehensive income (net of tax): |                  |                   
|Foreign currency translation adjustment  |                  |                   
|Gain on derivative instrument            |                  |                   
|                                         |                  |                   
|Comprehensive income (loss)              |                  |                   
|                                         |                  |                   

Other comprehensive income related to
the interest rate swap agreement consisted of the following components:

|                                            | Six Months Ended | Three Months Ended
|------------------------------------------- | ---------------- | ------------------
|                                            |                  |                   
|                                            |                  |                   
|                                            |                 
|                                            |                  |                   
|Change in fair value of  interest rate swap |                  |                   
|Settlement to interest expense              |                  |                   
|                                            |                 
|Other comprehensive income                  |                  |                   
|                                            |                 

12

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KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Note 9  Retirement
Plans

The
Company has several noncontributory defined benefit pension plans and defined contribution
plans covering substantially all of its employees. The defined benefit plans provide
benefits based on the participants years of service. The Companys funding
policy for defined benefit plans is to make annual contributions, which equal or exceed
regulatory requirements.

The
Company also has a nonqualified defined benefit supplemental retirement program
(SERP) for certain designated former officers of the Company and one active
executive in Canada which includes death and disability benefits. The plan is funded from
the general assets of the Company.

Effective
June 30, 2005, the Company established a non-qualified deferred compensation plan for
certain executives. This plan replaced the profit sharing plan contributions for these
individuals. This deferred compensation plan is a defined contribution plan and is
unfunded.

The
Company has a postretirement health-care plan that covers substantially all employees.
During the second quarter of fiscal 2006, the Board of Directors approved a resolution to
eliminate all Company contributions to the retiree healthcare plan. This resulted in
settlement accounting for the Companys outstanding obligation. Accordingly, the
Company recognized a $1.5 million pre-tax gain in the second quarter of fiscal 2006
associated with this settlement. The Company recorded the settlement
gain as a reduction of $1.2 million as an offset to cost of
sales and $.3 million to operating expenses.

Components of Net
Periodic Benefit Costs:

|Pension Benefits               | SERP Benefits | Postretirement Health-Care Benefits
|------------------------------ | ------------- | -----------------------------------
|                               |               |                                    
|Service cost                   |               |                                    
|Interest cost                  |               |                                    
|Expected return on plan assets |               |                                    
|Net amortization               |               |                                    
|                              
|Net periodic pension cost      |               |                                    
|                              

|Pension Benefits               | SERP Benefits | Postretirement Health-Care Benefits
|------------------------------ | ------------- | -----------------------------------
|                               |               |                                    
|Service cost                   |               |                                    
|Interest cost                  |               |                                    
|Expected return on plan assets |               |                                    
|Net amortization               |               |                                    
|                              
|Net periodic pension cost      |               |                                    
|                              

Employer Contributions

The Company has contributed $131,139
for the quarter and $264,815 for the six months ended December 31, 2005 to fund its
retirement plans compared to $171,379 and $339,657 respectively for the same periods in
the prior year. The Company anticipates contributing approximately an additional $270,000
to fund its retirement plans in fiscal 2006 for an estimated total of $535,000.

13

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

# Note 10  Segment Information

The
Company manages the business and reviews financial information by market channels.
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.

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

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

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

The
accounting policies of the business segments are the same as those described in the
summary of significant accounting policies in the 2005 Annual Report on Form 10-K.

|Three Months Ended:                        | Business Products OEM | Business Products Idea | Consumer | Distribution and Other | Manu-facturing | Corporate and Other | Consolidated Total
|------------------------------------------ | --------------------- | ---------------------- | -------- | ---------------------- | -------------- | ------------------- | ------------------
|                                           |                       |                        |          |                        |                |                     |                   
|December 31, 2005:                         |                       |                        |          |                        |                |                     |                   
|Net sales to external                      |                       |                       
|customers                                  |                       |                        | $        | 12,341,231             |                | $                   | 2,264,930         
|Operating profit (loss)                    |                       |                       
|before administrative                      |                       |                       
|costs, other expenses and                  |                       |                       
|income taxes                               |                       |                        |          | 843,241                |                |                     | 208,343           
|Administrative costs,                      |                       |                       
|other expenses                             |                       |                        |          | -                      |                |                     | -                 
|Income tax expense                         |                       |                        |          | -                      |                |                     | -                 
|Net income (loss)                          |                       |                        | $        | 843,241                |                | $                   | 208,343           
|January 1, 2005:                           |                       |                       
|Net sales to external                      |                       |                       
|customers                                  |                       |                        | $        | 10,223,620             |                | $                   | 2,351,052         
|Operating profit (loss)                    |                       |                       
|before administrative                      |                       |                       
|costs, other expenses and                  |                       |                       
|income taxes                               |                       |                        |          | 630,730                |                |                     | 293,514           
|Administrative costs,                      |                       |                       
|Restructure/impairment
     other expenses |                       |                        |          | -                      |                |                     | -                 
|Income tax expense                         |                       |                        |          | -                      |                |                     | -                 
|Net income (loss)                          |                       |                        | $        | 630,730                |                | $                   | 293,514           

14

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

|Six Months Ended:         | Business Products OEM | Business Products Idea | Consumer | Distribution and Other | Manu-facturing | Corporate and Other | Consolidated Total
|------------------------- | --------------------- | ---------------------- | -------- | ---------------------- | -------------- | ------------------- | ------------------
|                          |                       |                        |          |                        |                |                     |                   
|December 31, 2005:        |                       |                        |          |                        |                |                     |                   
|Net sales to external     |                       |                       
|customers                 |                       |                        | $        | 24,751,471             |                | $                   | 4,655,679         
|Operating profit (loss)   |                       |                       
|before administrative     |                       |                       
|costs, other expenses and |                       |                       
|income taxes              |                       |                        |          | 1,759,675              |                |                     | 450,945           
|Administrative costs,     |                       |                       
|Restructure/impairment    |                       |                       
|other expenses            |                       |                        |          | -                      |                |                     | -                 
|Income tax expense        |                       |                        |          | -                      |                |                     | -                 
|Net income (loss)         |                       |                        | $        | 1,759,675              |                | $                   | 450,945           
|                          |                       |                       
|January 1, 2005:          |                       |                       
|Net sales to external     |                       |                       
|customers                 |                       |                        | $        | 20,425,762             |                | $                   | 4,780,867         
|Operating profit (loss)   |                       |                       
|before administrative     |                       |                       
|costs, other expenses and |                       |                       
|income taxes              |                       |                        |          | 1,193,196              |                |                     | 683,753           
|Administrative costs,     |                       |                       
|Restructure/impairment    |                       |                       
|other expenses            |                       |                        |          | -                      |                |                     | -                 
|Income tax expense        |                       |                        |          | -                      |                |                     | -                 
|Net income (loss)         |                       |                        | $        | 1,193,196              |                | $                   | 683,753           

# Note 11  Legal
Contingencies

Two
pending legal matters are described in Note 15  Legal Contingencies in the 2005
Annual Report on Form 10-K. There has been no change in the Canada Customs and Revenue
Agency matter.

During
the second quarter of fiscal 2005, a competitor filed a suit in the U.S. District Court of
the Central District of California alleging that the Company infringes two of the
competitors U.S. patents. The competitor was seeking monetary damages and injunctive
relief. The Company received an opinion from its outside patent counsel that the
Companys products do not infringe the competitors patents. The Company denied
any liability. However, in an effort to resolve this matter, the Company agreed to a
settlement with the plaintiff. The settlement includes an amount payable for past sales of
the product and a royalty of 5% on all future sales of this product until the product is
redesigned.

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

In
the opinion of management, based on the information presently known and taking into
account established accruals of approximately $469,000 at December 31, 2005, the ultimate
liability for these matters will not have a material adverse effect on KVs financial
position or the results of its operations.

15

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

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

# RESULTS OF OPERATIONS

# Net Sales

Net
sales for the second quarter of fiscal 2006 were $40.9 million compared to $37.5 million
for the same period in the prior year. Net sales for the first six months of fiscal 2006
were $81.7 million compared to $75.9 million for the same period in the prior year. In
total, the Company had new product sales of $8.1 million and $16.5 million for the quarter
and six months ended December 31, 2005. This compared to new product sales of $7.3 million
and $15.3 million for the same periods respectively in fiscal 2005. New product
introductions have allowed the Company to expand its product offering and successfully
target new markets, including the automotive industry and the medical field. The Company
consistently defines new product sales, including product extensions, as those products
sold within a three-year period from the date of introduction.

The
Distribution and Other segment net sales of $18.9 million for the second quarter and $37.5
million for the first six months of fiscal 2006 represented growth of 11.3% and 6.5%,
respectively, over the same periods in the prior year. The growth resulted primarily from
the addition of several new products. These include the Virtu line of upscale
kitchen, bath, and closet accessories, several new wood and wire storage accessory
products and the expanded line of precision ball bearing drawer slides, including the
Precision Built family of slides.

The
Consumer segment net sales of $7.4 million for the second quarter and $14.9 million for
the first six months of fiscal 2006, represented a decline of 6.5% and 3.5%, respectively,
over the same periods in the prior year. Last year, the Company launched a number of new
products to several key customers during the first six months and filled the initial
stocking orders during this same period resulting in higher than normal sales. During the
second quarter of fiscal 2005, the Company performed an in depth review of its top 50
customers in this channel and developed a strategy for improving the profitability of
these customers. As a result of this process, it eliminated a number of the promotional
programs that had been utilized during the past few years and discontinued sales to
certain smaller customers. While this rationalization process reduced sales in this
segment, it has resulted in improved channel profitability.

The
Business Products Original Equipment Manufacturer (OEM) segment net sales of
$12.3 million for the second quarter and $24.8 million for the first six months of fiscal
2006 represented growth of 20.7% and 21.2%, respectively, over the same periods in the
prior year. The Business and Institutional Furniture Manufacturers Association
(BIFMA) results for the five months ended November 2005, reported increased shipments of
10.0% for the industry compared to the same period in the prior year. The Company has been
successful in growing sales to the Business Product 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 several new ergonomic accessory products,
including the updated line of height adjustable tables. Further, sales have grown as a
result of the addition of new customers in both existing markets and in new markets to the
Company, such as the automotive industry.

The
Idea segment net sales were $2.3 million for the second quarter and $4.7 million for the
first six months of fiscal 2006.Net sales decreased 3.7% for the second quarter
and 2.6% for the six months ended December 31, 2005. Late in fiscal 2005, management began
converting to a direct sales force to call on the customers served in this market. While
this change created some disruption in the segment, management believes it is now better
positioned for future sales growth. There are a number of new products in this channel and
utilizing a direct sales force will promote sales growth in this important channel of the
business. These products include the ProLiftix line of height adjustable tables, the
Polaris lever free adjustable keyboard system and the Proxi line of office
organization tools.

16

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# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)

The
Company offers 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 December 31, 2005 and July 2,
2005, the inventory program totaled $3.2 million and $3.5 million at cost, respectively.

# Gross Profit

Gross
profit, as a percentage of net sales, was 22.8% for the second quarter and 20.9% for the
first six months of fiscal 2006 compared to 18.6% and 18.1%, respectively, for the same
periods in the prior year. During the second quarter of fiscal 2006, KV recorded a gain of
$1.2 million pre-tax in cost of sales for the settlement of its retiree health plan. See
note 9 for more information on the settlement. Excluding this gain, gross profit, as a
percentage of net sales, was 19.9% for the second quarter and 19.5% for the first six
months of fiscal 2006. Fiscal 2006 gross profit improved due to lower steel costs and reduced costs as a
result of the consolidation of the wire operations. This was
partially offset by higher labor costs incurred during the first quarter of fiscal 2006,
due to certain drawer slides manufactured in the
United States instead of being sourced from overseas and the continued integration of wire
production into the Grand Rapids facility.

Asian
producers of both utility and precision drawer slides continue to pose a competitive
threat, particularly from a pricing perspective. In response, KV has established solid
vendor relationships with three key producers of these slides in Asia and has been
utilizing product sourced from these manufacturers to successfully address pricing
pressures. In addition, KV is establishing its own manufacturing entity in Vietnam. It has
received the business license for this entity, leased a facility, purchased manufacturing
equipment, and anticipates the startup of production during calendar 2006. The total
initial investment is anticipated to be approximately $1.0 million. Management believes
that utilizing these low-cost production resources will help KV remain competitive in the
U.S. marketplace and will allow it to improve the profitability and competitiveness of its
OEM market.

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

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

# Operating Expenses

Operating
expenses, as a percentage of net sales, were 12.8% for the second quarter and 13.2% for
the first six months of fiscal 2006 compared to 14.8% and 15.0%, respectively, for the
same periods in the prior year. During the second quarter of fiscal 2006, KV recorded a
pre-tax gain of $324,452 in operating expense for the settlement of its retiree health
plan. See note 9 for more information on the settlement. Excluding this gain, operating
expenses, as a percentage of net sales, were 13.6% for the second quarter and the first
six months of fiscal 2006. KV continues to be successful in leveraging its operating
expense as sales increase, while still having sufficient spending 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.

17

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

# Restructuring and
Impairment Expenses

During
the quarter ended January 1, 2005, the Company recognized asset impairment charges of
$115,088 pre-tax and accelerated depreciation of $304,116 pre-tax on certain manufacturing
equipment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.

In
January 2005, the Board of Directors approved a restructuring plan to close its Muncie,
Indiana facility and relocate its operations into existing available space in the Grand
Rapids, Michigan facility. In accordance with SFAS No. 144, the Company recorded pre-tax
impairment charges of $1,663,359, in the second quarter of fiscal 2005, consisting of the
write down of the long-lived assets; including real estate, fixed assets and manufacturing
equipment located in the Muncie facility to the lower of their carrying values or their
estimated fair values, less the disposition costs. The closure of the facility and
relocation of the operations was completed in June 2005.

In
addition, the Company incurred certain qualifying exit costs in connection with the
closure of the Muncie facility, including severance and the relocation of certain
equipment and inventory. All of the charges were recorded in the Manufacturing division of
the Company and were expensed as incurred.

In
July 2005, the Company determined certain assets previously classified as assets held for
sale would be used in production. Accordingly, the values of these assets were written up
by approximately $75,000 to their original net book value and were reclassified from
assets held for sale to property, plant, and equipment and depreciated. Additionally, the
Company re-listed the building held for sale with a new broker. The new broker
re-evaluated the market conditions and reduced the listing price. KV reduced the assets
held for sale for the building by approximately $75,000. Management believes that the
carrying value of the remaining assets held for sale is representative of the amounts that
will be received upon future sale, based upon currently available information.

# Interest and Other
Expenses, net

Interest
expense was $420,842 and $846,400 for the quarter and six months ended December 31, 2005,
compared to $401,538 and $796,124 for the same periods in the prior year, respectively.
Interest expense increased in the first half of fiscal 2006 due to higher borrowings and
an increase in the prime rate.

Other
income was $56,601 for the second quarter of fiscal 2006 compared to other expense of
$9,649 for the same quarter in the prior year. For the first six months of fiscal 2006,
other income was $158,942 compared to income of $77,779 for the same period in the prior
year. The other income for the first six months of fiscal 2006 reflects interest received
on previously filed amended tax returns. The other income shown in the prior year reflects
a legal settlement received in connection with one of the Companys patents, along
with favorable exchange rate gains.

# Income Taxes

The
effective tax rate was 32.5% for the second quarter of fiscal 2006 and 34.5% for the
first six months of fiscal 2006. During the second quarter of fiscal 2006, the Company
received a final settlement of certain Federal and provincial audits performed in Canada
and recognized $221,000 in refunds. The effective rate for the second quarter of fiscal
2005 was lower than normal as the Feeny subsidiary had a net operating loss at the state
level and was unable to record a deferred tax benefit on the impairment charge. The
impairment charges recognized caused the Company to pay $31,920 in taxes for the first
six months of fiscal 2005 on a pre-tax loss.

18

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

# Net Income (Loss)

Net
income for the six months ended December 31, 2005 was $3.7 million or $.81 per diluted
share and for the second quarter of fiscal 2006 was $2.5 million or $0.56 per diluted
share. Net loss for the six months ended January 1, 2005 was $132,304 or $.03 per diluted
share and for second quarter of fiscal 2005 was $522,815 or $0.12 per diluted share. During the
second quarter of fiscal 2006, the Board of Directors approved a resolution to eliminate
all Company contributions to its retiree health plan. This resulted in settlement
accounting for the Companys outstanding obligation. Accordingly, the Company
recognized a gain of approximately $952,000 after-tax in the second quarter of fiscal 2006
associated with this settlement. Fiscal 2005s loss included the impairment charges
and additional depreciation of approximately $1.3 million after-tax related to the
relocation of the Companys wire production. The Companys sales volume growth,
improved gross profits and better leveraging of operating expenses, were the primary
contributors to the net income improvement.

# Liquidity and Capital
Resources

Net
cash provided by operating activities for the first six months of fiscal 2006 was $3.6
million compared to $3.8 million for the first six months of fiscal 2005. Higher net
income in fiscal 2006 was offset by lower depreciation and amortization expense, the
decrease in retirement plan liability and an increase in inventory. Remaining working
capital requirements were relatively constant between the two periods.

Cash
used for investing activities was $1.3 million for the first six months of fiscal 2006,
compared to $1.6 million used in the same period in the prior year. Capital expenditures
totaled $1.5 million for the six months ended December 31, 2005, compared to $1.6 million
for the first six months of the prior year. The capital expenditures for the first six
months of fiscal 2006 represented investments in tooling for new products and the set up
of the Vietnam facility.

There
were capital expenditure commitments of approximately $936,131 for new product tooling and
Asian production equipment at December 31, 2005. Capital expenditures for the fiscal year
are anticipated to be approximately $3.0 million. The investments will be focused on
bringing new products and product improvements to our customers, along with our investment
in Asia.

Cash
provided by financing activities was $0.6 million for the first six months of fiscal 2006
as compared to cash used of $1.4 million in fiscal 2005. The expenditures represent the
Companys dividend payments to its shareholders.

Anticipated
cash flows from operations and available balances on the revolving credit line are
expected to be adequate to fund working capital, capital expenditures, and dividend
payments for the next year and the foreseeable future.

19

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

# MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

# Legal Proceedings

Two
pending legal matters are described in Note 15  Legal Contingencies in the 2005
Annual Report on Form 10-K. There has been no change in the Canada Customs and Revenue
Agency matter.

During
the second quarter of fiscal 2005, a competitor filed a suit in the U.S. District Court of
the Central District of California alleging that the Company infringes two of the
competitors U.S. patents. The competitor was seeking monetary damages and injunctive
relief. The Company received an opinion from its outside patent counsel that the
Companys products do not infringe the competitors patents. The Company denied
any liability. However, in an effort to resolve this matter, the Company agreed to a
settlement with the plaintiff. The settlement includes an amount payable for past sales of
the product and a royalty of 5% on all future sales of this product until the product is
redesigned.

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

In
the opinion of management, based on the information presently known and taking into
account established accruals of approximately $469,000 at December 31, 2005, the ultimate
liability for these matters will not have a material adverse effect on KVs financial
position or the results of its operations.

# New Accounting
Standards

See
Note 2 to the Condensed Consolidated Financial Statements.

# Critical Accounting
Policies

This
discussion and analysis of the Companys financial condition and results of its
operations is based upon its consolidated financial statements. The preparation of these
financial statements requires management to make estimates and assumptions that affect the
reported amounts. On an ongoing basis, management evaluates the estimates, including those
related to bad debts, inventories, long-lived assets, income taxes, self-insurance
reserves, retirement benefits and contingencies and litigation. Management bases the
estimates on historical experience and on various other assumptions and factors that they
believe to be reasonable under the circumstances. Based on managements ongoing
review, adjustments are made that are considered appropriate under the facts and
circumstances. The accompanying condensed consolidated financial statements are prepared
using the same critical accounting policies discussed in the 2005 Annual Report on Form
10-K.

# Trends and
Developments

The
Company announced October 13, 2005, that it has retained the investment-banking firm W.Y.
Campbell & Company to act as a financial advisor in evaluating strategic alternatives,
including a possible sale.

20

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES QUANTITATIVE AND QUALITATIVE
DISCLOSURESABOUT MARKET RISK

Item 3.  Quantitative and
Qualitative Disclosures About Market Risk

The Company is exposed to market
risks, which include changes in the Canadian dollar and the Vietnamese Dong foreign
currency exchange rates 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
$135,962 at December 31, 2005 and $434,763 at July 2, 2005.

The
following table provides information on the Companys fixed maturity investments as
of December 31, 2005 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.

|                                       |  | 
|-------------------------------------- |  | 
|Liability                              |  | 
|Variable rate revolving credit         |  | 
|agreement                              |  | 
|First $20,000,000 at an interest rate  |  | 
|of 4.42% (3 month LIBOR)               |  | 
|plus weighted average                  |  | 
|credit spread of .75%;                 |  | 
|Next $4,500,000 at an interest rate of |  | 
|4.29% (1 month LIBOR)                  |  | 
|plus weighted average                  |  | 
|credit spread of .75%;                 |  | 
|                                       |  | 
|                                       |  | 
|Interest Rate Swap                     |  | 
|Notional amount                        |  | 
|Receive variable                       |  | 
|at 3 month LIBOR - 4.41%               |  | 
|Pay fixed interest rate - 6.25%        |  | 

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 margins and retained earnings. The Company attempts to minimize currency exposure
through working capital management.

The
Company is in the process of establishing a manufacturing facility in Vietnam. Purchasing
and selling activities of this entity will be denominated in the Vietnamese Dong, thereby
they will potentially create exchange rate exposure.

The
Company does not hedge its exposure to translation gains and losses relating to foreign
currency.

21

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES CONTROLS AND PROCEDURES

Item 4. Controls and
Procedures

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

| | The
Companys Chief Executive Officer and the Vice President of Finance, after evaluating
the effectiveness of the Companys disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) as of the end of the period covered by this
Form 10-Q Quarterly Report have concluded that the Companys disclosure controls and
procedures were adequate and effective to ensure that material information relating to the
Company would be made known to them by others within the Company, particularly during the
period in which this Form 10-Q Quarterly Report was being prepared.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | During
the period covered by this report, there have been no changes in the Company's
         internal control over financial reporting that have materially affected or are
reasonably likely to materially  affect the Companys internal control over
financial reporting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22

---



# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

# PART II. OTHER
INFORMATION

Item 1. Legal Proceedings

Two
pending legal matters are described in Note 15  Legal Contingencies in the 2005
Annual Report on Form 10-K. There has been no change in the Canada Customs and Revenue
Agency matter.

During
the second quarter of fiscal 2005, a competitor filed a suit in the U.S. District Court of
the Central District of California alleging that the Company infringes two of the
competitors U.S. patents. The competitor was seeking monetary damages and injunctive
relief. The Company received an opinion from its outside patent counsel that the
Companys products do not infringe the competitors patents. The Company denied
any liability. However, in an effort to resolve this matter, the Company agreed to a
settlement with the plaintiff. The settlement includes an amount payable for past sales of
the product and a royalty of 5% on all future sales of this product until the product is
redesigned.

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

In
the opinion of management, based on the information presently known and taking into
account established accruals of approximately $469,000 at December 31, 2005, the ultimate
liability for these matters will not have a material adverse effect on KVs financial
position or the results of its operations.

Item 4.   Submission of
Matters to a Vote of Security Holders

| | (a) | Knape & Vogt Manufacturing Companys Annual Meeting of Shareholders was
               held on October 21, 2005.
| | --- | ----------------------------------------------------------------------------------------------------------------

| | (b) | Proxies were distributed by Knape & Vogt Manufacturing Company pursuant to
               Regulation 14A under the Securities Exchange Act of 1934. There was no
               opposition to managements nominees as listed in the proxy statement and
               all nominees were elected.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The vote on the nominees was:
| | -----------------------------

| | Richard S. Knape             
Michael J. Kregor            
William R. Dutmers | (1) (2)
(1) (2)
(1) (3) | For
15,458,563
15,472,116
 2,090,601 | Withheld
223,672
210,118
126,944
| | ------------------------------------------------------------------------------ | ----------------------- | ------------------------------------ | --------------------------------

| | (1) | Term expires in 2008.
| | --- | ---------------------

| | (2) | Elected by vote of holders of Common stock and Class B Common stock voting as a
                    class.
| | --- | ----------------------------------------------------------------------------------------------------------

| | (3) | Elected by vote of holders of Common stock voting as a class.
| | --- | -------------------------------------------------------------

| | Members
of the Board of Directors whose terms have not yet expired are: 
John
E. Fallon and Gregory Lambert, terms expiring in 2006 and Thomas A. Hilborn, Robert J.
Knape, and Christopher Norman, terms expiring in 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

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# KNAPE & VOGT
MANUFACTURING COMPANY AND SUBSIDIARIES

# PART II. OTHER
INFORMATION (Continued)

Item 6. Exhibits

| | 10(a) | Loan
amendment with Comerica Bank dated December 6, 2005 filed herewith.
| | ----- | ------------------------------------------------------------------------

| | 31.1 | Certificate
of the Chairman 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 Vice President of Finance 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 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 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.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24

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# SIGNATURES

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

|Date:        January 24, 2006
          Date:        January 24, 2006
           |  | Knape & Vogt Manufacturing Company(Registrant)/s/  William  R. Dutmers
William  R. DutmersChairman of the Board andChief Executive Officer/s/  Leslie J. Cummings
Leslie J. CummingsVice President of Finance andTreasurer
|---------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

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EXHIBIT INDEX

|Exhibit | Description
|------- | -----------

|10(a) | Loan
amendment with Comerica Bank dated December 6, 2005 filed herewith.
|----- | ------------------------------------------------------------------------

|31.1 | Certificate
of the Chairman 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 Vice President of Finance 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 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 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.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

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