Knape & Vogt Manufacturing (KNAP) 10-K/A 2005 FY Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM 10-K/A
(Amendment No. 1)

(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 2, 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 or Other Jurisdiction of Incorporation of Organization) 38-0722920
(I.R.S. Employer Identification No.)

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

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

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

None

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

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

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

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

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

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

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

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

1

EXPLANATORY NOTE The purpose of this Amendment No. 1 to the Form 10-K Annual Report is to file a corrected Item 8 - Financial Statements and Supplementary Data (Selected portions of the Company's Annual Report to Shareholders for the fiscal year ended July 2, 2005). The printed Financial Statements and Supplementary Data delivered to shareholders as part of the annual report were correct. However, the Form 10-K filed with the Securities and Exchange Commission via EDGAR contained an inadvertent error in the Consolidated Balance Sheets table on page 19, and inadvertent errors in Notes 9, 10 and 13. The purpose of this Amendment No. 1 is to file a corrected Item 8. On the Consolidated Balance Sheets (page 4 of this Form 10-K/A), the "Assets held for sale" of 1,281,213 is now correctly included in the July 2, 2005 column (it was mistakenly included in the July 3, 2004 column in the original filing). In Note 9 a number of dollar signs that were omitted in the original filing have been included (page 16 of this Form 10-K/A). In the statutory tax rate table (page 19 of this Form 10-K/A), the "Tax audit settlement" of (169,000) is now correctly included in the July 3, 2004 column (it was mistakenly included in the July 2, 2005 column in the original filing). In the table showing the fiscal 2003 business segments (page 22 of this Form 10-K/A), "Net sales to external customers" in the "Home and Commercial Products" column is now correctly stated as $89,215,101 (it was mistakenly shown as $89,215 in the original filing). The remainder of the document is unchanged.

2

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Operations

Year Ended	July 2, 2005		July 3, 2004	June 28, 2003
Net Sales	$ 157,365,965		$ 148,940,674	$ 124,874,939
Cost of Sales	127,247,898		118,212,331	97,592,773
Gross Profit	30,118,067		30,728,343	27,282,166
Expenses
Selling	17,846,181		19,312,542	17,961,595
Administrative and general	4,505,515		4,256,199	5,229,120
Impairment and restructure	2,270,021		-	271,325
Total Expenses	24,621,717		23,568,741	23,462,040
Operating Income	5,496,350		7,159,602	3,820,126
Other Expenses (Income)
Interest	1,605,340		1,632,201	1,458,580
Other, net	(155,391	)	2,202	(255,854	)
Total Other Expenses	1,449,949		1,634,403	1,202,726
Income Before Income Taxes	4,046,401		5,525,199	2,617,400
Income Taxes	966,129		1,790,267	386,501
Net Income	$     3,080,272		$    3,734,932	$     2,230,899
Basic and Diluted Earnings Per Share	$              0.68		$             0.83	$              0.49
Weighted-Average Shares Outstanding	4,514,243		4,516,245	4,516,706
Dividends Per Share
Common stock	$               .66		$              .66	$               .66
Class B common stock	$               .60		$              .60	$               .60

See accompanying notes to consolidated financial statements.

3

Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets

	July 2, 2005	July 3, 2004
Assets
Current Assets
Cash and equivalents	$  6,349,702	$  5,278,869
Accounts receivable, less allowances of $533,000 and $673,000,
respectively	19,944,781	19,959,442
Inventories, including inventory on consignment at customer
locations of $3,486,000 and $3,292,000 respectively	24,362,073	23,955,271
Prepaid expenses and other current assets	934,711	950,911
Assets held for sale	1,281,213	-
Total Current Assets	52,872,480	50,144,493
Property and Equipment
Land and improvements	1,081,531	1,175,614
Buildings	14,132,309	16,589,054
Machinery and equipment	64,748,607	66,043,000
Construction in progress	1,311,568	407,863
	81,274,015	84,215,531
Less accumulated depreciation	59,153,091	55,531,817
Net Property and Equipment	22,120,924	28,683,714
Goodwill, net of accumulated amortization of $1,099,000	4,772,837	4,772,837
Prepaid Pension Cost	12,194,574	12,088,937
Other Assets	427,823	561,345
	$92,388,638	$96,251,326

See accompanying notes to consolidated financial statements.

4

Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets

	July 2, 2005		July 3, 2004
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$ 11,085,322		$ 11,299,675
Accruals:
Income taxes	978,801		1,829,986
Accrued compensation	2,781,447		3,005,614
Accrued customer rebates and cooperative advertising	2,149,025		1,975,397
Other	4,638,464		4,695,036
Total Current Liabilities	21,633,059		22,805,708
Other Retirement Benefits	4,930,626		4,753,797
Long-Term Debt and Capital Leases	22,524,129		24,538,864
Deferred Income Taxes	4,707,000		5,896,000
Interest Rate Swap Agreement and Other Long-Term Liabilities	485,947		1,432,739
Total Liabilities	54,280,761		59,427,108
Stockholders' Equity
Stock:
Common, $2 par - 6,000,000 shares authorized; 2,482,663 and
2,331,860 issued and outstanding	4,965,326		4,663,720
Class B common, $2 par - 4,000,000 shares authorized; 2,027,842
and 2,184,489 issued and outstanding	4,055,684		4,368,978
Preferred - 2,000,000 shares authorized and unissued	-		-
Additional paid-in capital	7,471,697		7,544,749
Unearned stock grant	-		(94,500	)
Accumulated other comprehensive loss:
Derivative instrument	(282,763	)	(904,133	)
Minimum SERP adjustment	(1,184,366	)	(1,047,874	)
Minimum pension adjustment	-		(250,015	)
Foreign currency translation adjustment	708,658		396,156
Total accumulated other comprehensive loss	(758,471	)	(1,805,866	)
Retained earnings	22,373,641		22,147,137
Total Stockholders' Equity	38,107,877		36,824,218
	$ 92,388,638		$ 96,251,326

See accompanying notes to consolidated financial statements.

5

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

	Common Stock			Additional paid-in capital			Restricted stock grants			Accumulated other comprehensive income (loss)			Retained earnings			Total
Balance, June 29, 2002	$	9,034,304		$	7,550,062		$	(94,500	)	$	(2,154,460	)	$	21,877,814		$	36,213,220
Comprehensive income:
Net income		-			-			-			-			2,230,899			2,230,899
Foreign currency translation		-			-			-			411,635			-
adjustment
Minimum SERP adjustment, net of
deferred taxes of $152,000		-			-			-			(227,665	)		-
Minimum pension adjustment, net of
deferred taxes of $302,000		-			-			-			(384,677	)		-
Loss on derivative instrument, net
of deferred taxes of $333,000		-			-			-			(619,822	)		-
Other comprehensive loss		-			-			-			(820,529	)		-			(820,529	)
Comprehensive income		-			-			-			-			-			1,410,370
Cash dividends		-			-			-			-			(2,847,316	)		(2,847,316	)
Restricted stock forfeited (50 shares)		(100	)		(601	)		-			-			-			(701	)
Restricted stock issued (813 shares)		1,626			8,612			-			-			-			10,238
Repurchase and retirement of shares of
common stock (2,280 shares)		(4,560	)		(19,389	)		-			-			-			(23,949	)
Balance, June 28, 2003		9,031,270			7,538,684			(94,500	)		(2,974,989	)		21,261,397			34,761,862
Comprehensive income:
Net income		-			-			-			-			3,734,932			3,734,932
Foreign currency translation		-			-			-			70,320			-
adjustment
Minimum SERP adjustment, net of
deferred taxes of $103,000		-			-			-			207,294			-
Minimum pension adjustment, net of
deferred taxes of $157,000		-			-			-			134,662			-
Gain on derivative instrument, net
of deferred taxes of $407,000		-			-			-			756,847			-
Other comprehensive income		-			-			-			1,169,123			-			1,169,123
Comprehensive income		-			-			-			-			-			4,904,055
Cash dividends		-			-			-			-			(2,849,192	)		(2,849,192	)
Restricted stock issued (714 shares)		1,428			6,065			-			-			-			7,493
Balance, July 3, 2004		9,032,698			7,544,749			(94,500	)		(1,805,866	)		22,147,137			36,824,218
Comprehensive income:
Net income		-			-			-			-			3,080,272			3,080,272
Foreign currency translation		-			-			-			312,502			-
adjustment
Minimum SERP adjustment, net of
deferred taxes of $76,000		-			-			-			(136,492	)		-
Minimum pension adjustment, net of
deferred taxes of $157,000		-			-			-			250,015			-
Gain on derivative instrument, net
of deferred taxes of $335,000		-			-			-			621,370			-
Other comprehensive income		-			-			-			1,047,395			-			1,047,395
Comprehensive income		-			-			-			-			-			4,127,667
Cash dividends		-			-			-			-			(2,853,768	)		(2,853,768	)
Restricted stock forfeited (6,600 shares)		(13,200	)		(81,300	)		94,500			-			-			-
Restricted stock issued (756 shares)		1,512			8,248			-			-			-			9,760
Balance, July 2, 2005	$	9,021,010		$	7,471,697		$	0		$	(758,471	)	$	22,373,641		$	38,107,877

See accompanying notes to consolidated financial statements.

6

Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows

Year Ended	July 2, 2005		July 3, 2004		June 28, 2003
Operating Activities
Net income	$ 3,080,272		$ 3,734,932		$ 2,230,899
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property and equipment	5,904,792		6,306,890		6,605,516
Amortization of other assets	64,730		93,468		36,575
Deferred income taxes	(1,498,627	)	(370,106	)	480,000
Increase (decrease) in supplemental retirement benefits	53,334		(23,709	)	13,284
(Increase) decrease in prepaid pension cost	233,112		414,554		(4,276,691	)
Impairment loss	1,778,447		-		-
Loss (gain) on disposal of property and equipment	(9,111	)	1,450		136,746
Other	12,526		42,098		50,000
Changes in operating assets and liabilities:
Accounts receivable	137,080		(3,107,525	)	439,638
Inventories	(406,802	)	(4,976,215	)	(5,816,911	)
Other current assets	18,504		(218,626	)	898,337
Accounts payable	(218,952	)	692,252		943,130
Accruals	(1,029,616	)	2,319,201		(1,229,205	)
Net cash provided by operating activities	8,119,689		4,908,664		511,318
Investing Activities
Additions to property and equipment	(2,416,547	)	(1,199,398	)	(3,707,536	)
Proceeds from sales of property and equipment	15,453		53,975		243,527
Other, net	(47,351	)	(28,114	)	(62,282	)
Net cash used for investing activities	(2,448,445	)	(1,173,537	)	(3,526,291	)
Financing Activities
Dividends paid	(2,853,768	)	(2,849,192	)	(2,847,316	)
Principal payments on capital lease obligations	(14,734	)	(13,741	)	(6,080	)
Borrowings/(repayments) on long-term debt	(2,000,000	)	500,000		4,000,000
Repurchase and retirement of common stock	-		-		(23,949	)
Net cash provided by (used for) financing activities	(4,868,502	)	(2,362,933	)	1,122,655
Effect of Exchange Rate Changes on Cash	268,091		60,062		308,388
Net Increase (Decrease) in Cash and Equivalents	1,070,833		1,432,256		(1,583,930	)
Cash and equivalents, beginning of year	5,278,869		3,846,613		5,430,543
Cash and equivalents, end of year	$ 6,349,702		$ 5,278,869		$ 3,846,613
Supplemental Information:
Interest paid	$ 1,608,859		$ 1,628,923		$ 1,448,663
Income taxes paid	4,704,130		934,411		316,000

See accompanying notes to consolidated financial statements.

7

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

NOTE 1. Nature of Operations.

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

NOTE 2. Summary of Significant Accounting Policies

      Principles of Consolidation

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

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

      Revenue Recognition

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

      Concentration of Credit Risk

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

      Shipping and Handling Costs

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

      Foreign Currency

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

8

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

      Fair Value Disclosures of Financial Instruments

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

      Derivative Financial Instruments

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

      Cash and Equivalents

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

      Inventories

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

      Property, Equipment and Depreciation

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

      Leased Property Under Capital Leases

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

      Stock Based Compensation

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

9

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

      Goodwill and Intangible Assets

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

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

      Self-Insurance

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

      Income Taxes

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

      Advertising

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

      Earnings Per Share

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

	2005	2004	2003
Numerators:
Numerator for both basic and
diluted EPS, net income	$3,080,272	$3,734,932	$2,230,899
Denominators:
Denominator for both basic and
diluted EPS, weighted-average
common shares outstanding	4,514,243	4,516,245	4,516,706

10

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

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

	2005	2004	2003
Exercise Price
$13.64	6,050	6,050	6,875
$14.09	7,700	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.

      New Accounting Standards

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

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

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

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

11

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

      Use of Estimates in Preparation of Financial Statements

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

      Reclassifications

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

NOTE 3. Impairment/Severance

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

	2005		2004		2003
Severance & stay on bonuses	$	105,202	$	-	$	271,325
Facility exit costs & other		386,372		-		-
Asset impairment		1,778,447		-		-
Total	$	2,270,021	$	-	$	271,325

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

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

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

12

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

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

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

	Severance & Stay on bonuses			Facility exit Costs & other			Total
Accrual balance, July 3, 2004	$	-		$	-		$	-
Restructuring charges		105,202			386,372			491,574
Cash payments		(55,507	)		(386,372	)		(441,879	)
Accrual balance, July 2, 2005	$	49,695		$	-		$	49,695

NOTE 4. Inventories

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

	July 2, 2005		July 3, 2004
Finished products	$	15,038,354	$	15,256,160
Consignment		3,485,891		3,292,297
Work in process		2,154,142		2,062,060
Raw materials		3,683,686		3,344,754
	$	24,362,073	$	23,955,271

NOTE 5. Warranty

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

	July 2, 2005			July 3, 2004			June 23, 2003
Accrued warranty costs at the beginning
of the year	$	287,000		$	275,000		$	235,000
Payments made for warranty costs		(427,000	)		(216,000	)		(198,000	)
Accrual for product warranty		534,000			228,000			238,000
Accrued warranty costs at the end of the
year	$	394,000		$	287,000		$	275,000

13

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

NOTE 6. Long-Term Debt

        Long-term debt obligations are summarized as follows:

	July 2, 2005			July 3, 2004
Revolving credit agreement	$	22,500,000		$	24,500,000
Capital lease obligations		38,864			52,605
Less: Current portion of capital lease
obligations		(14,735	)		(13,741	)
	$	22,524,129		$	24,538,864

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

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

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

NOTE 7. Derivative Financial Instruments

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

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

14

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

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

	July 2, 2005						July 3, 2004						June 28, 2003
	Pre-Tax			After-Tax			Pre-Tax			After-Tax			Pre-Tax			After-Tax
Change in fair value
of interest rate swap	$	1,703,537		$	1,107,029		$	2,177,697		$	1,415,850		$	(15,938	)	$	(10,360	)
Settlement to
interest expense		(747,167	)		(485,659	)		(1,013,850	)		(659,003	)		(936,884	)		(609,462	)
Other comprehensive
income (loss)	$	956,370		$	621,370		$	1,163,847		$	756,847		$	(952,822	)	$	(619,822	)

NOTE 8. Lease Commitments

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

Fiscal Year	Operating		Capital
2006	$	198,860	$	16,988
2007		182,491		16,988
2008		180,530		8,501
2009		133,927		-
2010 and thereafter		430,359		-
Total minimum payments	$	1,126,167	$	42,477
Less - interest on capital leases				3,613
Total principal payable on capital leases
(included in Note 6)			$	38,864

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

NOTE 9. Retirement Plans

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

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

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

15

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

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

	Pension Benefits						SERP Benefits						Postretirement Health-Care Benefits
	2005			2004			2005			2004			2005			2004
Change in benefit obligations
Benefit obligations at
beginning of year	$	19,099,349		$	20,324,552		$	3,359,139		$	3,511,333		$	2,252,625		$	2,346,600
Service cost		411,801			492,019			8,220			7,022			82,141			88,547
Interest cost		1,184,774			1,101,529			201,639			195,358			130,313			125,997
Actuarial (gains)/losses		2,270,307			(1,994,348	)		336,440			(31,959	)		32,821			(136,613	)
Benefits paid		(905,206	)		(827,264	)		(307,044	)		(322,615	)		(161,294	)		(171,906	)
Exchange rate		281,263			2,861			67,547			-			-			-
Benefit obligations at end of
year	$	22,342,288		$	19,099,349		$	3,665,941		$	3,359,139		$	2,336,606		$	2,252,625
Change in plan assets
Fair value of plan assets at
beginning of year	$	21,772,819		$	20,028,261		$	-		$	-		$	-		$	-
Actual return on plan assets		1,680,106			2,383,935			-			-			-
Employer contributions		192,362			187,887			307,044			322,615			161,294			171,906
Benefits paid		(905,206	)		(827,264	)		(307,044	)		(322,615	)		(161,294	)		(171,906	)
Exchange rate and other		274,228			-			-			-			-			-
Fair value of plan assets at
end of year	$	23,014,309		$	21,772,819		$	-		$	-		$	-		$	-
Funded status	$	672,020		$	2,673,470		$	(3,665,941	)	$	(3,359,139	)	$	(2,336,606	)	$	(2,252,625	)
Unrecognized transition amount		(9,813	)		(11,039	)		-			-			336,265			384,302
Unrecognized net actuarial loss		11,133,371			9,197,332			2,135,874			1,905,281			2,618,270			2,747,136
Unrecognized prior service cost
		398,995			537,759			(113,540	)		(123,211	)		(2,117,917	)		(2,339,897	)
Net amount recognized	$	12,194,574		$	12,397,522		$	(1,643,607	)	$	(1,577,069	)	$	(1,499,988	)	$	(1,461,084	)
Amounts recognized in the
consolidated balance sheets
consist of:
Prepaid pension cost	$	12,194,574		$	12,088,937		$	-		$	-		$	-		$	-
Other retirement benefits		-			(90,092	)		(3,430,637	)		(3,202,620	)		(1,499,988	)		(1,461,084	)
Accumulated other
comprehensive income		-			398,677			1,787,030			1,625,551			-			-
Net amount recognized	$	12,194,574		$	12,397,522		$	(1,643,607	)	$	(1,577,069	)	$	(1,499,988	)	$	(1,461,084	)

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

Weighted-average assumptions	2005			2004			2005			2004			2005			2004
Discount rate		5	.25%		6	.25%		5	.25%		6	.25%		5	.25%		6	.25%
Expected return on plan assets		8	.0%		8	.0%		N	/A		N	/A		N	/A		N	/A

16

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

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

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

	Pension Benefits									SERP Benefits
	2005			2004			2003			2005		2004		2003
Service cost	$	411,801		$	492,019		$	348,632		$	8,220	$	7,022	$	1,850
Interest cost		1,184,774			1,101,529			1,111,277			201,639		195,358		191,440
Expected return on plan assets		(1,783,324	)		(1,771,387	)		(1,561,435	)		-		-		-
Net amortization		611,260			681,875			275,976			111,856		144,191		123,876
Net periodic benefit cost	$	424,511		$	504,036		$	174,450		$	321,715	$	346,571	$	317,166

	Postretirement Heath Care Benefits
	2005			2004		2003
Service cost	$	82,141		$	88,547	$	64,437
Interest cost		130,313			125,997		135,608
Net amortization		(12,256	)		9,643		(4,739	)
Net periodic benefit cost	$	200,198		$	224,187	$	195,306

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

One-Percentage Point	Increase		Decrease
Effect on total of service and interest cost	$	2,044	$	(1,775	)
components
Effect on postretirement health-care benefit	$	46,996	$	(40,219	)
obligation

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

	2005			2004
Equity securities		64	.2%		57	.2%
Debt securities		16	.0%		6	.0%
Money market, stable value funds
and cash		19	.8%		36	.8%
Total		100	.0%		100	.0%

        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.

17

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

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

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

	Pension		SERP		Postretirement Health-Care
2006	$	949,061	$	311,975	$	186,126
2007		929,261		308,914		173,847
2008		986,639		305,477		169,720
2009		1,035,984		301,636		170,655
2010		1,088,048		297,371		168,314
2011-2015		6,362,956		1,450,316		898,523

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

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

NOTE 10. Income Taxes

        Income tax expense (benefit) consists of:

Year Ended	July 2, 2005			July 3, 2004			June 28, 2003
Current:
United States	$	1,415,892		$	1,991,267		$	(581,499	)
Foreign, state and local		1,151,454			437,942			(53,000	)
Total current		2,567,346			2,429,209			(634,499	)
Deferred:
United States		(1,311,848	)		(638,000	)		508,000
Foreign		(116,143	)		(100,942	)		499,000
State and local		(173,226	)		100,000			14,000
Total deferred		(1,601,217	)		(638,942	)		1,021,000
Income tax expense	$	966,129		$	1,790,267		$	386,501

18

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

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

Year Ended	July 2, 2005			July 3, 2004			June 28, 2003
Federal income taxes at the statutory
rate	$	1,376,000		$	1,879,000		$	890,000
Foreign earnings taxed at foreign
statutory rate		40,000			-			113,000
State and local income taxes		(18,000	)		22,000			(15,000	)
Tax audit settlement		-			(169,000	)		-
Utilization of previously disallowed
loss		-			-			(607,000	)
Valuation reserve for subsidiary
state taxes		123,000			-			-
Expiration of statutory period/R&D
credits		(594,000	)		-			-
Other		39,129			58,267			5,501
Income tax expense	$	966,129		$	1,790,267		$	386,501

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

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

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

	July 2, 2005			July 3, 2004
Property and equipment	$	4,664,000		$	6,592,000
Pension accrual		4,444,000			4,594,000
Subsidiary state tax NOL		398,000			-
Supplemental retirement plan		(1,249,000	)		(1,213,000	)
Benefit related accruals		(1,026,000	)		(1,000,000	)
Inventory reserves		(1,472,000	)		(2,145,000	)
Rebates, advertising and royalty accrual		(293,000	)		(251,000	)
Derivative instrument		(165,000	)		(487,000	)
Other, including valuation allowances		(787,181	)		(503,325	)
	$	4,513,819		$	5,586,675

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

19

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

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

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

NOTE 11. Stock Option Plans

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

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

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

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

        Transactions under the plans are as follows:

Year Ended	July 2, 2005			Weighted Average Exercise Price		July 3, 2004			Weighted Average Exercise Price		June 28, 2003			Weighted Average Exercise Price
Options outstanding,
beginning of year		252,933		$	17.78		454,023		$	19.12		548,848		$	18.80
Forfeited		(239,183	)	$	18.01		(201,090	)	$	20.92		(94,825	)	$	17.26
Options outstanding at
end of year		13,750		$	13.89		252,933		$	17.78		454,023		$	19.12
Options exercisable at
end of year		13,750		$	13.89		225,433		$	18.19		220,340		$	20.30
Options available for
grant, end of year		-					443,275					240,657

20

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

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

Price	Outstanding and Exercisable Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)
$13.64		6,050				0.50
$14.09		7,700				1.00
		13,750		$ 13.89		.75

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

NOTE 12. Stockholders’ Equity

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

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

NOTE 13. Business Segments

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

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

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

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

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

21

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

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

	Business Products OEM			Business Products Idea		Consumer		Distribution and Other		Manufacturing			Corporate and Other			Consolidated Total
Year Ended July 2, 2005:
Net sales to
external customers	$	43,120,858		$	9,086,172	$	31,670,916	$	73,700,944	$	(212,925	)		-		$	157,365,965
Operating profit before
administrative costs, other
expenses and income taxes	$	3,096,687		$	1,172,306	$	1,141,620	$	12,078,853	$	(5,217,580	)		-		$	12,271,886
Administrative costs,
other expenses		-			-		-		-	$	2,270,021		$	5,955,464		$	8,225,485
Income tax expense		-			-		-		-		-			966,129			966,129
Net income (loss)	$	3,096,687		$	1,172,306	$	1,141,620	$	12,078,853	$	(7,487,601	)	$	(6,921,593	)	$	3,080,272
Year Ended July 3, 2004:
Net sales to
external customers	$	37,161,339		$	9,258,142	$	34,119,746	$	68,438,515	$	(37,068	)	$	-		$	148,940,674
Operating profit before
administrative costs, other
expenses and income taxes	$	(2,543,392	)	$	1,301,708	$	345,203	$	11,513,820	$	798,463			-		$	11,415,802
Administrative costs,
other expenses		-			-		-		-		-		$	5,890,603		$	5,890,603
Income tax expense		-			-		-		-		-			1,790,267			1,790,267
Net income (loss)	$	(2,543,392	)	$	1,301,708	$	345,203	$	11,513,820	$	798,463		$	(7,680,870	)	$	3,734,932

        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 and Commercial Products		Corporate and Other			Consolidated Total
Year Ended June 28, 2003:
Net sales to external
Customers	$	35,659,838		$	89,215,101	$	-		$	124,874,939
Income tax expense
(benefit)	$	(37,000	)	$	4,751,000	$	(4,327,499	)	$	386,501
Net income (loss)	$	(76,048	)	$	7,964,928	$	(5,657,981	)	$	2,230,899

22

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

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

Year Ended	July 2,2005		July 3, 2004		June 28, 2003
Net sales:
United States	$	139,787,470	$	131,412,021	$	109,880,520
Canada		13,418,013		12,450,557		10,048,356
Other foreign		4,160,482		5,078,096		4,946,063
	$	157,365,965	$	148,940,674	$	124,874,939
Long-lived assets:
United States	$	21,116,604	$	28,617,333	$	33,962,862
Other foreign		1,004,320		66,381		26,247
	$	22,120,924	$	28,683,714	$	33,989,109

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

NOTE 14. Quarterly Results (Unaudited)

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

Year Ended July 2, 2005	1st Quarter		2nd Quarter			3rd Quarter		4th Quarter
Net sales	$	38,372,180	$	37,496,247		$	40,169,917	$	41,327,621
Gross profit	$	6,804,776	$	6,959,082		$	7,737,003	$	8,617,206
Operating income (loss)	$	969,525	$	(351,563	)	$	2,095,787	$	2,782,601
Net income (loss)	$	390,511	$	(522,814	)	$	1,691,611	$	1,520,964
Earnings (loss) per share-basic and
diluted	$	0.09	$	(0.12	)	$	0.37	$	.34
Cash dividend-common stock	$	0.165	$	0.165		$	0.165	$	0.165
Cash dividend-Class B common stock	$	0.15	$	0.15		$	0.15	$	0.15
Year Ended July 3, 2004	1st Quarter		2nd Quarter			3rd Quarter		4th Quarter
Net sales	$	36,005,957	$	34,333,759		$	36,850,156	$	41,750,802
Gross profit	$	7,052,310	$	7,160,611		$	7,947,384	$	8,568,038
Operating income	$	1,264,086	$	1,253,817		$	2,204,333	$	2,437,366
Net income	$	669,874	$	441,905		$	1,138,341	$	1,484,811
Earnings per share-basic and diluted	$	0.15	$	0.10		$	0.25	$	0.33
Cash dividend-common stock	$	0.165	$	0.165		$	0.165	$	0.165
Cash dividend-Class B common stock	$	0.15	$	0.15		$	0.15	$	0.15

NOTE 15. Commitments and Contingencies

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

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

23

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

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

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

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

24

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of Knape & Vogt Manufacturing Company and subsidiaries (the “Company”) as of July 2, 2005 and July 3, 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended July 2, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Knape & Vogt Manufacturing Company and subsidiaries as of July 2, 2005 and July 3, 2004, and the results of their operations and their cash flows for each of the three years in the period ended July 2, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
August 10, 2005

25

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KNAPE & VOGT MANUFACTURING COMPANY


By /s/ William R. Dutmers
      ——————————————
      William R. Dutmers
      Chairman of the Board
      and Chief Executive Officer


By /s/ Leslie J. Cummings
      ——————————————
      Leslie J. Cummings
      Vice President of Finance
      and Treasurer

Date: October 28, 2005

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on October 28, 2005, by the following persons on behalf of the registrant in the capacities indicated.

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

/s/ Thomas A. Hilborn
——————————————
Thomas A. Hilborn, Director /s/ Michael J. Kregor
——————————————
Michael J. Kregor, Director

/s/ Richard S. Knape
——————————————
Richard S. Knape, Director /s/ Robert J. Knape
——————————————
Robert J. Knape, Director

/s/ Gregory Lambert
——————————————
Gregory Lambert, Director /s/ Christopher Norman
——————————————
Christopher Norman, Director

26

KNAPE & VOGT MANUFACTURING COMPANY
ANNUAL REPORT — FORM 10-K

EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

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

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

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

21* Subsidiaries of Registrant.

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

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

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

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

* Previously filed

27