SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

Commission File Number 000-30138

ROCKFORD CORPORATION

(Exact name of Registrant as Specified in Its Charter)

600 South Rockford Drive

Tempe, Arizona 85281

(480) 967-3565

(Address and Telephone Number of Principal Executive Offices)

Securities Registered Pursuant to Section 12(b) of the Act:

None

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

Common Stock ($.01 Par Value)

      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 þ          No o

      Indicate by check mark if the 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.     o

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes o          No þ

      The aggregate market value of the voting stock held by non-affiliates of the registrant was $26,316,239 as of June 30, 2004.

      There were 9,233,024 shares of Common Stock issued and outstanding as of March 31, 2005.

      Documents Incorporated by Reference: Portions of the registrant’s definitive Proxy Statement relating to the 2005 Annual Meeting of Stockholders to be held on May 11, 2005, are incorporated by reference into Part III of this Form 10-K. Exhibit 99.9 to this Form 10-K is also incorporated by reference into Part I of this Form 10-K.

ROCKFORD CORPORATION

FORM 10-K

DECEMBER 31, 2004

TABLE OF CONTENTS

      The market value of Rockford’s voting stock held by non-affiliates shown on the cover page is based on:

      Rockford’s calculation of the number of shares held by affiliates is a good faith estimate for this Annual Report. Shares held by affiliates include all shares beneficially owned by Rockford’s executive officers and directors. They also include shares held by any shareholder who beneficially owned more than 10% of Rockford’s shares, as disclosed in this report, except that Rockford has not included in shares held by affiliates the shares that may be beneficially owned by Quaker Capital Management Corporation in light of its disclaimer of beneficial ownership. Rockford is not bound by this figure for any other purpose.

Forward-Looking Statements And Risk Factors

      We make forward-looking statements in this report including, without limitation, statements concerning the future of our industry, product development, business strategy, continued acceptance and growth of our products, dependence on significant customers and suppliers, and the adequacy of our available cash resources. Statements may contain projections of results of operations or of financial condition. These statements may be identified by the use of forward-looking terminology such as “may,” “will,” “believe,” “expect,” “anticipate,” “estimate,” “continue” or other similar words.

      Forward-looking statements are subject to many risks and uncertainties. We caution you not to place undue reliance on these forward-looking statements, which speak only as at the date on which they are made. Actual results may differ materially from those described in these forward-looking statements. We disclaim any obligation or undertaking to update these forward-looking statements to reflect changes in our expectations or changes in events, conditions, or circumstances on which our expectations are based.

      When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements identified in this report and in Exhibit 99.9, “Risk Factors That May Affect Rockford’s Operating Results, Business Prospects and Stock Price,” which is incorporated in this report by reference. The risk factors noted throughout this report, particularly in the discussion in Exhibit 99.9, and other risk factors that Rockford has not anticipated or discussed, could cause our actual results to differ significantly from those anticipated in our forward-looking statements.

PART I

Rockford Business

      Rockford Corporation (with its subsidiaries, “Rockford” or “the Company”) currently designs, manufactures and distributes high performance audio systems for the mobile, professional and home theater audio markets. In 2004, Rockford announced a strategic realignment that will focus Rockford on its core mobile audio business and is expected to lead to the divestiture of the remaining non-core businesses including Rockford’s professional and home theater audio businesses.

      Mobile audio sales accounted for 95.1% of Rockford’s revenue in 2004. Rockford’s mobile audio products are sold primarily in the worldwide mobile audio aftermarket to consumers who want to improve the audio systems in their cars, trucks, boats and airplanes. Rockford believes its ability to deliver innovative and technologically advanced products appeals to its consumers’ desire for distinctive, leading-edge products and powerful, high quality sound. Rockford markets its core mobile audio products primarily under the Rockford Fosgate, Lightning Audio, Q-Logic and InstallEdge.com brand names, selling products that include digital and analog amplifiers, speakers, speaker enclosures and accessories.

      Rockford currently sells home theater products, primarily under the NHT and Fosgate Audionics brands. Rockford also sells professional audio products, primarily under the NHT and Hafler brands. On January 4, 2005, Rockford announced the engagement of an investment banker to assess strategic alternatives, including a possible sale, for these non-core businesses.

Rockford’s Brands

      Rockford marketing and product development efforts are designed to enhance its brand images and generate increased loyalty among its consumers in each market segment and among the retailers who sell Rockford products. Rockford markets its products under the following primary brands:

        Rockford also sells Rockford Fosgate products to Nissan for installation as part of factory installed audio systems for four models of Nissan vehicles, the Sentra SE-R, Xterra, Frontier Crew Cab and Titan full size truck. Mitsubishi has agreed to install Rockford Fosgate branded audio systems in two models of Mitsubishi vehicles beginning with the 2006 model year. Rockford also sells Rockford Fosgate products under the Connecting Punch brand, for a full line of mobile audio installation accessories;

Strategy for Rockford’s Brands

      Rockford’s goal is to design, produce and distribute some of the best engineered and most recognized and respected brands of high performance mobile audio products in the world. Rockford’s strategy is intended to enhance and reinforce Rockford’s global brand images among consumers and retailers. Key elements of Rockford’s strategy are to:

As a result of Rockford’s brands and strategy, Rockford believes it can grow its business and become a more significant participant in the worldwide mobile audio market.

Rockford Products

      Rockford sales since 2002 were divided among Rockford’s principal product classes as shown in the following table:

      Financial information about geographic segments may be found at Note 13 of the Notes to Consolidated Financial Statements of this Form 10-K.

      Rockford offers high performance mobile audio products consisting of the following primary types of products:

      Under the Rockford Fosgate brand Rockford currently offers the following products:

      Under the Lightning Audio brand Rockford currently offers the following products:

      Under the Q-Logic brand Rockford currently offers speaker enclosure models in the Q-Enclosure line, vehicle specific enclosures available in factory matching colors in the Q-Customs line and custom speaker mounting kick panels, including different panels available in factory matching colors, in the Q-Forms line. These models have suggested retail prices from $30 to $320.

      Under Rockford’s InstallEdge.com brand Rockford sells various back shop supplies, including vehicle harnesses, power distribution adapters, batteries, RCA connectors, wire, wiring accessories and fuses.

      Nissan North America offers Rockford Fosgate branded OEM systems for four Nissan vehicles for model year 2004 and 2005. Rockford provides amplifiers and certain speakers in these vehicles as well as branding the radio/ CD player under the Rockford Fosgate brand. Mitsubishi Motors plans to offer Rockford Fosgate branded OEM systems in two vehicles for the 2006 model year.

      Rockford sells home theater products under the Fosgate Audionics and NHT brands. Fosgate Audionics products include preamp/surround processors and multi-channel amplifiers with retail prices from $2,795 to $12,995. NHT products include high performance audio component systems under the xD, Evolution, Super Audio and Architectural series with suggested retail prices from $200 to over $10,000.

      Rockford also sells professional audio products under the NHT and Hafler brands. NHT professional audio products include powered monitors with suggested retail prices from $500 for a pair of monitors to $6,600 for a surround sound monitoring system. Rockford sells professional, reference quality audio amplifiers and speakers under the Hafler brand, with amplifier suggested retail prices ranging from $569 to $2,200 and speaker suggested retail prices ranging from $1,250 to $1,850 per pair.

Engineering And Product Development

      Engineering and product development is a primary focus of Rockford’s business because of the demand by Rockford’s core consumers for leading-edge products. Rockford focuses its engineering and development efforts primarily on enhancing current products and developing new products. Expenditures for engineering and development were approximately $4.7 million, $7.2 million and $7.0 million in 2002, 2003 and 2004, respectively.

      As at December 31, 2004, Rockford’s engineering and development staff consisted of approximately 26 engineers, including engineers in research, development, and in sustaining groups, as well as other support staff, dedicated to the development of Rockford’s current products and of Rockford’s technology platform for future products.

      Rockford’s objective is to introduce new products or re-engineer over one-third of its existing product line annually.

Sales, Marketing And Distribution

      Rockford endeavors to have its brands project an image that appeals to consumers who appreciate high quality and value. Rockford products are promoted with advertisements in consumer electronics and lifestyle magazines, newspapers and other publications as well as on television, radio and the Internet. Rockford participates in trade and consumer shows, supports users of its products in auto sound competitions and supplies promotional prizes and giveaways to its dealers.

      Rockford’s primary sales and marketing activities are listed below:

      Rockford’s corporate web site, located at www.rockfordcorp.com, and its brand sites such as www.rockfordfosgate.com, www.lightningaudio.com, www.installedge.com, www.fosgateaudionics.com, www.qlogic.ws, www.hafler.com, www.nhtpro.com and www.nhthifi.com, offer consumers and retailers reliable and comprehensive information about its product offerings and consumer services.

      Domestic Distribution. Rockford currently sells its mobile audio products in the U.S. to retailers who operate approximately 5,000 retail stores. These include stores operated by independent specialty dealers, audio/video retailers, consumer electronic chains, mass merchandisers, internet retailers and catalog merchants. Rockford may appoint a retailer to sell some or all of its mobile audio brands.

      Rockford sells directly to most of its authorized retailers using independent sales representative firms who identify, recruit, sell to, and provide support to retailers in their regions. Rockford has entered into agreements with each of these sales representative firms under which Rockford appoints them its sales representative for a specific territory and specific products under varying terms. Rockford pays its independent sales representatives commissions based on sales of Rockford’s products to independent retailers in their territory. Commission amounts range from 1% to 10% of sales depending upon (1) product category, (2) the retailer involved in the purchase and (3) achievement of quarterly sales targets.

      Rockford also permits some of its Rockford Fosgate brand sales representatives to stock a small quantity of Rockford Fosgate products for resale to smaller dealers. These smaller dealers are generally located in rural areas, or otherwise have very small volume potential, so that it is not economical for Rockford to appoint them as direct retailers. They nevertheless provide a useful extension of Rockford’s distribution system into more remote regions. Rockford’s stocking representative program allows it to serve these smaller dealers efficiently. In a few instances where stocking representatives are not available, Rockford has appointed independent distributors to handle smaller dealers in a particular territory.

      Rockford supports its independent sales representative firms using an in-house staff of U.S. regional managers and sales support staff members.

      International Distribution. Rockford currently sells its mobile audio products in approximately 70 countries outside the U.S. using independent distributors and sales representatives. Independent distributors purchase products from Rockford and resell them to retailers in their designated territories. They assume inventory risk and take responsibility for warranty service in their territory.

      In Canada, Germany, Austria and Italy, Rockford sells its Rockford Fosgate and Lightning Audio products through independent sales representatives. Independent sales representatives do not purchase products from Rockford, but instead sell products on Rockford’s behalf. Rockford remains responsible for inventory until an independent retailer purchases it. Rockford is responsible for collecting accounts receivable from retailers and Rockford retains responsibility for warranty service. Rockford is generally able to increase its penetration in these markets, compared to an independent distribution model, but because relatively high sales volumes are needed to justify the use of independent sales representatives, Rockford anticipates continuing to distribute through distributors in smaller territories.

      Rockford supports its international distributors and sales representatives using an in-house staff of international sales managers.

      Rockford distributes NHT and Fosgate Audionics home theater products through a mix of conventional independent retail stores and custom installers. Rockford sells to these customers using sales representatives domestically and distributors internationally.

      NHT professional audio products are sold directly in the North American market through the NHT pro website, www.nhtpro.com. The NHT Pro brand is directed at the working professional who typically prefers direct factory purchases. Hafler professional audio products are sold through a national distributor group in four regions of the U.S., who sell to small specialty musical instrument and pro audio dealers.

Competition

      Rockford’s primary markets are very competitive, fragmented and characterized by price competition and rapid product obsolescence. Rockford competes in the mobile audio market on the basis of sound quality, brand recognition, innovation and technology, reliability, breadth of product line, distribution capabilities and price.

      Some of Rockford’s competitors have greater financial, technical and other resources than Rockford does and many seek to offer lower prices on competing products. To remain competitive, Rockford believes it must regularly introduce new products, add performance features to existing products and limit increases in prices or even reduce prices. Rockford’s principal competitors within Rockford’s product lines are listed below:

      Mobile Audio Amplifiers: Alpine, JL Audio, Kenwood, Kicker, MTX, Dual, Pioneer and Sony;

      Mobile Audio Speakers: Alpine, Boston Acoustics, Infinity, JL Audio, Kenwood, Kicker, MTX, Pioneer and Sony;

      Mobile Audio Accessories: Monster Cable, AAMP America and Stinger;

      Professional Audio Amplifiers and Speakers: Crest, Crown, Eastern Acoustic Works, Mackie Designs, Peavy, QSC, KRK and Tannoy; and

      Home Theater: Adcom, Audio Products Int’l, B&W, Bose, Boston Acoustics, Harman Kardon, Infinity, JBL, Klipsh, Paradigm, Polk Audio, and Rotel.

      Rockford’s OEM products compete directly with Bose and Harman International. Rockford also competes indirectly with automobile manufacturers, who may improve the quality of original equipment sound systems, reducing demand for aftermarket mobile audio products. They may also change the designs of their cars in ways that make installation of Rockford’s products more difficult or expensive. OEM products have gained an increasing share of the total mobile audio market in recent years as automobile manufacturers have integrated additional functions such as navigation into vehicle electronic systems and have somewhat improved the quality of their mobile audio offerings. This increased market share for OEM products has affected the market for aftermarket mobile audio products where Rockford offers most of its products.

Manufacturing

      Rockford believes its production, sourcing and distribution capabilities make it one of the preferred suppliers in the mobile audio aftermarket industry. Rockford currently manufactures amplifiers and various accessories at Rockford’s facilities in Tempe, Arizona, subwoofers at Rockford’s facility in Grand Rapids, Michigan and speaker enclosure and kick panel products at Rockford’s facility in Stillwater, Oklahoma.

      In 2004, Rockford purchased approximately $12.2 million and $11.8 million of finished product from its two largest suppliers. These Asian-based manufacturers supplied some of Rockford’s speakers and amplifiers. Rockford provides specifications and cosmetic renderings and the manufacturer develops and manufactures the product. Rockford owns all of the tooling and the manufacturer is obligated not to sell these products to anyone other than Rockford. Rockford believes it could move production of these products to other third party manufacturers, or build them internally, although such a move would take time and involve significant costs. Other third parties manufacture other amplifiers, speakers, home theater products and various components according to Rockford’s design specifications.

      Most of Rockford’s products use standard parts and components that can be purchased from multiple sources. In many instances, however, Rockford sources components or products from one or a small number of suppliers to leverage dollars and volumes. Rockford relied on one component supplier for approximately

$7.6 million of Rockford’s component purchases during 2004. Rockford believes alternative sources are available for substantially all of Rockford’s inventory requirements, although changes in suppliers would take time and involve transitional costs.

      Rockford believes that its sources and supplies of components and other raw materials are adequate for its needs. Rockford has not experienced a significant inability to obtain necessary components or other raw materials.

Intellectual Property

      Rockford relies upon a combination of trade secret and trademark laws, non-disclosure agreements and patents to protect its proprietary rights. Rockford has registered many trademarks and trade names both in the U.S. and internationally and is committed to maintaining and protecting them. Rockford believes its trademarks and trade names are material to its business and are well known among consumers in its principal markets. Rockford’s principal trademarks and trade names include, but are not limited to:

Significant Customer and Seasonality

      Best Buy is a significant customer. Rockford products are currently sold in each of its more than 650 stores in North America. Best Buy is one of the largest volume specialty retailers of consumer electronics and entertainment software in the U.S. Best Buy accounted for 22%, 27% and 28% of Rockford’s sales for 2002, 2003 and 2004, respectively. Rockford anticipates that Best Buy will continue to account for a significant portion of its sales for the foreseeable future.

      Best Buy generally helps to smooth out Rockford’s normal sales seasonality. For Rockford’s specialty and audio-video dealers, the peak-selling season is in the spring and summer and the slowest season is typically in the fourth quarter. Rockford believes that it experiences this seasonality because its core 16-24 year old consumers tend to buy mobile audio products during the spring and summer when they are on semester breaks and when generally more favorable weather facilitates installation of its products. Best Buy sales, while strong in May and June, are not as dependent upon Rockford’s core consumers and are also strong in the fourth quarter due to Best Buy’s aggressive holiday season advertising.

      Best Buy is not obligated to any long-term purchases of Rockford’s products and has considerable discretion to reduce, change or terminate its purchases of Rockford’s products. The loss of Best Buy as a customer or significant reductions in its purchases of Rockford’s products would materially reduce Rockford’s sales.

Product Support

      To maintain and enhance its relationships with retailers, Rockford provides numerous support services, including product and installation training, sales training and technical and customer service support. Rockford’s web site provides comprehensive and valuable information for dealers and distributors, including product schematics, ad layouts and logos.

      Rockford products carry standard warranties to purchasers who buy Rockford products from authorized dealers. The warranties cover defects in material and workmanship and, for purchasers from authorized dealers, Rockford will either repair or replace a product that fails to satisfy these warranties. Rockford also

offers repair services for products that are no longer covered under the original warranty. For Rockford’s U.S. customers, it has in-house customer service, repair and technical support personnel who provide general company information, installation support, troubleshooting and system design assistance. Rockford also provides a factory direct repair program that repairs and ships product rapidly, reducing retailer and consumer inconvenience if its products fail to perform properly.

      For Rockford’s international customers, it provides warranty and customer service to consumers in the countries where it sells direct to retailers. These countries include Canada, Germany, Austria, and Italy. In other countries, Rockford’s distributors provide customer service and warranty support.

Information Systems

      Rockford’s information systems are designed to respond quickly to inquiries from managers, employees, suppliers and customers. Rockford has implemented internet-based systems to provide accurate and timely information and allow Rockford’s representatives, dealers and distributors to check the status of their orders at a secure Internet site. Rockford has also implemented internet systems to provide accurate and timely information to its suppliers in support of just-in-time delivery of components to Rockford’s manufacturing facilities. These systems help Rockford reduce costs by reducing inventory requirements and providing better information from suppliers.

Employees

      As of December 31, 2004, Rockford had approximately 520 full-time employees including 16 employees working outside of the U.S. in various functions. This was a reduction of 203 full-time employees compared to December 31, 2003, including a reduction of approximately 141 full-time employees resulting from the placement of MB Quart GmbH into receivership as discussed elsewhere in this report. In addition, Rockford generally uses temporary personnel as needed. Rockford has never had a work stoppage and none of its employees are unionized. Rockford believes its employee relations are good.

Environmental Compliance

      Whenever possible, Rockford avoids using hazardous materials in its production processes. Two chemicals used in the basic electronic manufacturing processes, lacquer and flux, are listed as hazardous substances by the U.S. Environmental Protection Agency. Rockford uses them in limited quantities in its production facility, taking care to see that they are stored, used and disposed of in the proper manner. Rockford believes that its compliance with federal, state, local and foreign laws and regulations governing the discharge of materials into the environment, or otherwise relating to the protection of the environment, will not have a material effect upon its capital expenditures, earnings or competitive position. Rockford does not anticipate material capital expenditures for environmental control facilities for the remainder of the current fiscal year or the succeeding fiscal year.

      Rockford’s corporate headquarters and electronics manufacturing facilities are located in Tempe, Arizona. Rockford manufactures speakers at its facility in Grand Rapids, Michigan and speaker enclosures at its facility in Stillwater, Oklahoma. It uses warehouses located in the U.S., Germany, and Singapore. Rockford believes these facilities enhance its ability to serve its markets faster and more cost effectively than many of its competitors.

      The following table contains information about Rockford’s facilities as at December 31, 2004, all of which are leased:

      During 2004, there were no further material proceedings with respect to the Fiori patent claim described in Rockford’s Annual Reports for 2001, 2002 and 2003. The products at issue in the case are 16 Rockford Punch brand amplifiers, which the plaintiff contends include circuitry that infringes on his patents. At the end of 2003, the parties submitted briefs and the court held a Markman hearing. The parties are currently waiting for the judge to issue her Markman ruling, interpreting the claims of the plaintiff’s patent. During March 2005, the judge asked the parties to appoint a technical expert who could advise the court on certain elements of the technical claims made by the parties in connection with the Markman hearing and the parties are currently working to select an expert to do so. Depending upon the results of the Markman ruling, Rockford anticipates the parties will submit motions in the case shortly after the court’s Markman ruling. If necessary, a trial could occur in late 2005 or in 2006. The costs of defending this matter have been, and are likely to continue to be, substantial; however, Rockford continues to believe the claims involved in the case are without merit and Rockford should ultimately prevail.

      During 2004, Rockford continued to litigate a matter with its former distributor for Central and South America relating to Rockford’s efforts to collect a balance owed to Rockford and the distributor’s claims that Rockford improperly terminated its distribution rights. In early 2005, the court granted Rockford’s motion for summary judgment with respect to substantially all matters raised in the case. The former distributor has stated that he intends to appeal this ruling. The former distributor has undertaken legal actions in Panama that have interfered with the ability of Rockford’s new distributor for Central and South America to develop and service those markets. This interference has been one of the causes of a decline in Rockford’s sales in this territory. Rockford intends to continue to take actions designed to reduce or eliminate this interference, and to seek redress for the damage the former distributor is causing to its business. Rockford is unable to determine at this time when, or the extent to which, its efforts to collect on the judgment or to eliminate the interference with business in Central and South America will be successful.

      Rockford is and may continue to be a party to various lawsuits and arbitrations from time to time. As at December 31, 2004, Rockford was not a party to any legal proceedings that it believes are likely to have a material effect on its business, other than the effect of the expense associated with the matters described above.

      No matters were submitted to a vote of security holders during the fourth quarter of 2004.

PART II

      Rockford common stock has traded on The NASDAQ National Market System under the symbol “ROFO” since April 20, 2000, the date of its initial public offering. Prior to that time, there was no public market for its common stock. The following table sets forth the range of high and low sales prices for Rockford’s common stock for the periods indicated:

      As at March 31, 2005, there were approximately 135 holders of record of Rockford’s common stock.

      Rockford has never declared or paid any cash dividends on its common stock. Rockford currently intends to retain its earnings, if any, to finance its operations and, therefore, does not anticipate paying cash dividends on its common stock in the foreseeable future. Rockford’s current credit agreement does not permit stock repurchases or the payment of cash dividends.

Sales of Unregistered Securities

      As of June 10, 2004, Rockford closed agreements for the private placement of $12.5 million of 4.5% convertible senior subordinated secured notes due 2009 and warrants to purchase 649,810 shares of common stock at $5.75 per share. The noteholders may convert the notes into Rockford’s common stock at any time before the scheduled maturity date of June 10, 2009. The conversion price was $5.29 per share, which represented a 15% premium over the closing price of Rockford’s common stock on June 9, 2004. If fully converted, the notes were scheduled to convert into 2,362,949 shares of Rockford’s common stock. Rockford has the right to automatically convert the notes into common stock if the common stock trades above a specified target price for a specified period. Rockford also may force the exercise of the warrants under certain circumstances prior to their expiration date. The notes, warrants, and shares of common stock issuable upon conversion of the notes or exercise of the warrants were subsequently the subject of a registration statement on Form S-3 filed by Rockford with the SEC on July 12, 2004.

      As of September 30, 2004, Rockford was in default under the indenture under which Rockford issued its convertible notes. The default was caused by the voluntary receivership of Rockford’s German subsidiary, MB Quart GmbH. The holders of the convertible notes waived the default on November 12, 2004. In connection with the waiver, the holders retroactively waived their right to be paid default interest and the interest rate remains at 4.5% (versus the 9.5% default interest rate). The noteholders waived the default in exchange for an amendment to the notes that reduced the conversion price from $5.29 per share to $4.61 per share. This will increase the number of shares of common stock issuable, if all of the notes are converted, from 2,362,949 shares to 2,711,497 shares. In addition, the original warrants issued were increased to allow the

purchase of 1,187,500 shares of common stock versus the 590,737 shares available under the original agreement (excluding 59,073 warrants issued to Piper Jaffray & Co., the placement agent in the original transaction). The exercise price of the warrants, including the Piper Jaffray warrants, was also lowered from $5.75 to $3.73 per share. Finally, the agreement was amended to delete the provision that provided for the early termination of the note-holder’s second priority lien on certain assets if Rockford’s average monthly EBITDA for any twelve consecutive months commencing with the month ending June 30, 2004 is positive.

      Rockford has not made any sales of unregistered securities during the past three years, except for (1) the sales of notes and warrants described above, (2) sales of Rockford’s common stock to employees exercising their stock options during the period prior to the effectiveness of a registration statement on Form S-8 relating to such sales and (3) the sale during March 2002 of 215,000 shares to Grisanti, Galef & Goldress, Inc. pursuant to the stock options Rockford granted that firm in 1992.

Equity Compensation Plan Information

      The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” and Item 8, “Financial Statements and Supplementary Data.” The table contains selected consolidated financial data for the five years ended December 31, 2004 derived from Rockford’s audited consolidated financial statements. Prior period amounts have been reclassified to conform to the 2004 presentation.

      This Analysis should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business,” “Item 6: Selected Financial Data,” and “Item 8: Financial Statements and Supplementary Data.” This Analysis does not reflect the potential impact of any divestitures, mergers, acquisitions or other business combinations that had not been completed as of the filing date of this report.

Results of Operations

      Rockford announced plans for the strategic realignment of its business on September 21, 2004. These plans will re-focus Rockford on its core mobile audio business and are likely to involve the divestiture of its remaining non-core businesses.

      As part of this realignment, Rockford put its MB Quart GmbH German manufacturing operations into receivership in September 2004, completed the sale of its SimpleDevices business in October 2004 and engaged an investment banker in January 2005 to assess strategic alternatives for its home and professional audio business including the NHT, Fosgate Audionics, and Hafler brands. In order to facilitate its strategic realignment, Rockford took non-cash reserves and write-offs of approximately $28.7 million during 2004, including $5.9 million for the loss on the disposal of the MB Quart GmbH subsidiary, $6.1 million to establish a valuation allowance against US deferred tax assets, $8.8 million for additional write-downs of Omnifi and other inventory, $5.6 million for the write-off of goodwill and approximately $2.3 million for other miscellaneous adjustments. During the fourth quarter Rockford recorded a gain on the sale of the SimpleDevices business of $5.5 million. There were no outstanding liabilities at December 31, 2004 associated with this realignment.

      Rockford placed MB Quart GmbH into receivership under German law after it determined that receivership was the only alternative that would promptly relieve Rockford of any further obligations to invest working capital or incur losses arising from MB Quart GmbH’s manufacturing operation in Germany. By instituting the receivership Rockford relinquished any future benefit from the asset of this subsidiary. As a result, Rockford recorded a loss on disposal of this discontinued operation of $5.9 million during the year ended December 31, 2004. Rockford believes this action will eliminate over $2 million in annual operating loss. Rockford remains a creditor of MB Quart GmbH; however, there is only a remote chance that it will recover any significant portion of its loan balance of approximately $5 million and it has fully reserved against this asset.

      Although relinquishing the German operation was a positive step towards resolving Rockford’s cash flow and profitability issues, it caused a default on both Rockford’s credit facility with Congress Financial Corporation (Western) and its convertible notes. The holders of Rockford’s convertible notes waived the default on November 12, 2004. In connection with the waiver, the holders retroactively waived their right to be paid default interest and the interest rate on the notes remains at 4.5% (versus the 9.5% default interest rate).

The noteholders waived the default in exchange for an amendment to the notes that reduced the conversion price from $5.29 per share to $4.61 per share. This will increase the number of shares of common stock issuable, if all of the notes are converted, from 2,362,949 shares to 2,711,497 shares. In addition, the original warrants issued to the noteholders were increased to allow the purchase of 1,187,500 shares of common stock versus the 590,737 shares originally available (excluding 59,073 warrants issued to Piper Jaffray & Co., the placement agent in the original transaction). The exercise price of the warrants, including the Piper Jaffray warrants, was also lowered from $5.75 to $3.73 per share. Finally, the agreement was amended to delete the provision that provided for the early termination of the note-holder’s second priority lien on certain of Rockford’s assets if its average monthly EBITDA for any twelve consecutive months commencing with the month ending June 30, 2004 is positive.

      Rockford was also in default on the Congress credit facility both because of the MB Quart GmbH receivership and because Rockford did not reach the required EBITDA targets established in the Congress loan agreement as of the end of September 2004. Congress granted a waiver on November 12, 2004 that waived this default as of September 30, 2004. Rockford and Congress amended the credit facility in December 2004. The amendment waived past covenant violations, reset financial covenants for 2005, provided for additional liquidity of up to $2 million under certain conditions and increased interest rates. The balance on the Congress credit facility was $15.5 million as of December 31, 2004, down from a balance of $25.4 million as of June 30, 2004.

      In furtherance of Rockford’s strategic realignment, Rockford sold its majority interest in SimpleDevices, Inc. to Universal Electronics Inc. as disclosed in its report on Form 8-K filed on October 4, 2004 for approximately $7.8 million. At closing, Rockford received approximately $6.4 million which was used to pay down the senior credit facility. The remaining proceeds of approximately $1.2 million, net of $0.2 million of fees, were placed into an escrow account that will be used to pay claims of Universal, if any, relating to the representations made in the Stock Purchase Agreement. If there are no claims, one-third of the escrow amount will be released to Rockford in April 2005 and the rest will be released in October 2006. At the closing Rockford also received $1.4 million in cash in full payment of a $1.4 million loan Rockford had extended to SimpleDevices. This divestiture is expected to eliminate approximately $300,000 per month of operating losses. Rockford recorded a gain on disposal of discontinued operations of $5.5 million related to this divestiture in the fourth quarter of 2004.

      Rockford generated over 94.9% and 95.1% of its sales from its mobile audio products in 2003 and 2004, respectively. Rockford mobile audio sales for 2004 were up 1.8% from 2003.

      Although Rockford believes it has gained market share in a declining market, 2003 and 2004 were difficult years. Results were affected by:

Rockford believes that its strategic realignment and the investments it made in new products, distribution channels and technologies, combined with improvements it is implementing in its processes, have positioned Rockford for improved financial performance in 2005.

      Rockford’s 2004 product launches had a significant negative impact on Rockford’s results for 2004. End of life discounting of 2003 product was prevalent and greater than usual early in 2004 due to the extent of the product line overhaul. The discounting impacted margins more than Rockford anticipated. Manufacturing of Rockford’s old product was ramped down before the new product was fully ready for manufacturing and production issues with the new product resulted in unfavorable manufacturing variances and product shortages. Rockford also experienced increased raw material inventory levels, increased engineering costs and

premium freight charges associated with the delayed production of new products. Rockford believes the relaunch of the product line was a necessary investment and believes that it has reinforced its leadership position in the marketplace with its new product line.

      Rockford continues to see a shift in its sales mix into different distribution channels, with the independent specialty dealer and audio/video retailer channels seeing declines in sales and the consumer electronics chain and mass merchandise channels seeing growth in sales. This shift has had some positive effects, including expansion of Rockford’s product exposure beyond its traditional target market and smoothing out of sales seasonality. But the shift has also had some negative effects, including increased product returns, increased finished goods inventory levels and extended terms for sales to larger retailers.

      Sales of Rockford products through independent specialty dealers generally include professional installation. Sales through the consumer electronics chain and mass merchandise channels are often for self- or third-party installation. This difference in installation practice results in higher returns because self-or third-party installations are more likely to have misapplications of products or have other installation issues. The consumer electronics and mass merchandise retailers also tend to have less intervention in the sale and return process than the independent specialty retailers. Together, these differences contribute to significantly greater returns in the expanding consumer electronics and mass merchandise channels.

      The products Rockford sells through the mass merchandise channels are primarily sourced brands, generally manufactured in China. Sourcing requires Rockford to carry more finished goods inventory due to longer lead times and less flexibility to meet changing demand. The consumer electronics chains and mass merchandisers typically negotiate longer payment terms than Rockford’s other channels, which increase receivable balances; however, these customers generally pay within terms. In 2003, Wal-Mart began carrying Rockford’s Lighting Audio line and expanded Rockford’s product offerings in 2004. Rockford anticipates continued growth in the consumer electronics chain and mass merchandise channels in 2005.

      The following table shows, for the years indicated, selected consolidated statements of operations data expressed as a percentage of net sales:

      Cost of goods sold primarily consists of raw materials, direct labor and manufacturing costs associated with production of Rockford’s products as well as warranty, warehousing, freight-in and customer service expenses.

      Sales and marketing expenses primarily consist of salaries, sales commissions, costs of advertising, trade shows, distributor and sales representative conferences and freight.

      General and administrative expenses primarily consist of salaries, facilities and other costs of Rockford’s accounting, finance, management information systems, administrative and executive departments, as well as legal, accounting and other professional fees and expenses associated with Rockford’s business.

      Research and development expenses primarily consist of salaries associated with its research and development personnel and legal costs related to Rockford’s intellectual property.

      Rockford’s sales to external customers by geographic region were as follows:

      In the following discussion, certain increases or decreases may differ due to rounding.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

      Net Sales. Sales increased by $2.8 million, or 1.7%, to $169.6 million for 2004 from $166.8 million for 2003. The increase in sales was primarily attributable to an increase in OEM sales and reduced product discounts, partially offset by decreased sales of Rockford’s aftermarket mobile audio products.

      U.S. sales increased by $2.5 million, or 1.8%, to $140.8 million for 2004 from $138.3 million for 2003, with the increase attributable to the increase in OEM sales, which was partially offset by a decrease in aftermarket mobile audio sales. International sales increased by $0.3 million, or 1.1%, to $28.8 million for 2004 from $28.5 million for 2003.

      Cost of Goods Sold. Cost of goods sold increased by $19.1 million, or 16.6%, to $134.5 million for 2004 from $115.3 million for 2003. As a percent of sales, cost of goods sold increased to 79.3% for 2004 from 69.2% for 2003. The increase as a percent of sales is due primarily to inventory write-downs of $8.8 million, other costs associated with Rockford’s strategic realignment decisions, higher product costs, and the unfavorable manufacturing variances and premium freight caused by the Rockford Fosgate product line changeover in early 2004.

      Sales and Marketing Expenses. Sales and marketing expenses decreased by $1.5 million, or 4.7%, to $29.8 million for 2004 from $31.3 million for 2003. As a percent of sales, sales and marketing expenses decreased to 17.6% for 2004 from 18.8% for 2003. The decrease was due to lower costs for sales and marketing employees and reduced promotional activities.

      General and Administrative Expenses. General and administrative expenses increased by $8.0 million, or 45.1%, to $25.6 million for 2004 from $17.7 million for 2003. The increase in general and administrative expenses is primarily due to the write off of goodwill of $5.6 million, additional allowance for bad debts, and increased professional fees partially due to Rockford’s strategic realignment. As a percent of sales, general and administrative expenses increased to 15.1% for 2004 from 10.6% for 2003.

      Research and Development Expenses. Research and development expenses decreased by $0.2 million, or 3.0%, to $7.0 million for 2004 from $7.2 million for 2003. As a percent of sales, these expenses decreased to 4.1% for 2004 from 4.3% for 2003. The decrease was primarily due to lower costs for engineering employees.

      Operating Loss From Continuing Operations. Operating loss from continuing operations increased by $22.6 million, or 475.6%, to $27.4 million for 2004 from an operating loss from continuing operations of $4.8 million for 2003. As a percent of sales, operating loss from continuing operations increased to 16.1% for 2004 from operating loss of 2.9% for 2003. This increase is primarily attributable to charges related to Rockford’s strategic realignment, write-downs of inventory, write off of goodwill, and the unfavorable manufacturing variances and premium freight associated with the relaunch of the Rockford Fosgate product line.

      Interest and Other Expense (Income), Net. Interest and other expense (income), net, primarily consists of interest expense and currency gains and losses. Interest and other expense (income), net, increased by $3.9 million to $4.2 million for 2004 compared to $0.2 million for 2003. The increase includes $1.2 million of write-offs of internally developed software and other fixed assets deemed obsolete. In addition, interest expense increased due to higher outstanding balances and an overall higher effective rate on borrowings on Rockford’s credit facility and convertible notes.

      Income Tax Expense (Benefit). Income tax expense (benefit) increased by $7.1 million to an expense of $4.6 million for 2004 from a benefit of $2.5 million for 2003. The expense in 2004 includes $4.6 million non-cash charge to establish a valuation allowance against Rockford’s deferred tax asset.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

      Net Sales. Sales increased by $4.0 million, or 2.4%, to $166.8 million for 2003 from $162.8 million for 2002. The increase in sales was primarily attributable to the addition of sales from Rockford’s NHT and Q-Logic brands, the growth in sales of Rockford’s mobile audio products through consumer electronic chain and mass merchandise sales channels and increases in OEM sales. The increase in these areas was partially offset by decreases in sales of Rockford’s mobile audio products through the specialty dealer and audio/video sales channels.

      U.S. sales increased by $1.4 million, or 1.1%, to $138.3 million for 2003 from $136.9 million for 2002, with the increase attributable to the factors discussed above. International sales increased by $2.6 million, or 9.8%, to $28.5 million for 2003 from $25.9 million for 2002.

      Cost of Goods Sold. Cost of goods sold increased by $10.3 million, or 9.8%, to $115.3 million for 2003 from $105.1 million for 2002. As a percent of sales, cost of goods sold increased to 69.2% for 2003 from 64.5% for 2002. The primary reasons for the increase as a percent of sales were the unfavorable capacity variance caused by the Rockford Fosgate product line changeover at the end of 2003.

      Sales and Marketing Expenses. Sales and marketing expenses increased by $4.1 million, or 15.0%, to $31.3 million for 2003 from $27.3 million for 2002. As a percent of sales, sales and marketing expenses increased to 18.8% for 2003 from 16.8% for 2002. The increase was due to increased marketing efforts on the brands and products Rockford acquired in 2001 and 2002, the Fast and Furious 2 royalty paid during 2003 and $0.3 million of Rockford’s 2003 Arizona restructuring charges that were related to sales and marketing changes.

      General and Administrative Expenses. General and administrative expenses increased by $2.1 million, or 13.9%, to $17.7 million for 2003 from $15.5 million for 2002. Reasons for the increase in general and administrative expenses include approximately $0.9 million of abandoned acquisition costs, $0.3 million in

restructuring charges and the incremental costs of operating the acquired NHT business. As a percent of sales, general and administrative expenses increased to 10.6% for 2003 from 9.5% for 2002.

      Research and Development Expenses. Research and development expenses increased by $2.5 million, or 52.2%, to $7.2 million for 2003 from $4.7 million for 2002. As a percent of sales, these expenses increased to 4.3% for 2003 from 2.9% for 2002. The increase was primarily due to product development costs relating to Rockford’s redesign of the Rockford Fosgate product line and the continuing development of Rockford’s Omnifi products.

      Operating Income (Loss). Operating income (loss) from continuing operations decreased by $15.0 million, or 146.5%, to a loss from continuing operations of $4.8 million for 2003 from income from continuing operations of $10.2 million for 2002. As a percent of sales, operating income (loss) from continuing operations decreased to (2.9)% for 2003 from operating income of 6.3% for 2002. This decrease is primarily attributable to the relaunch of Rockford’s Rockford Fosgate product line, restructuring costs and costs related to an abandoned acquisition.

      Interest and Other Expense (Income), Net. Interest and other expense (income), net, primarily consists of interest expense and currency gains and losses. Interest and other expense (income), net, increased by $0.2 million to result in expense of $0.2 million for 2003 compared to an expense of less than $0.1 million for 2002. The increase was primarily due to additional interest expense on the increased borrowings on Rockford’s line of credit resulting from the business acquisitions made in 2001 and 2002 combined with increased levels of inventory and accounts receivable and an increase in the interest rate under Rockford’s line of credit as a result of a covenant default.

      Income Tax (Benefit) Expense. Income tax (benefit) expense decreased by $6.3 million to a benefit of $2.5 million for 2003 from a $3.8 million expense for 2002. The effective income tax rates were a benefit of 49.8% for 2003 and an expense of 37.8% for 2002. The primary reason for this decrease in the effective tax rate was the effect of the valuation allowance recorded with respect to the MB Quart GmbH net operating loss carry forward, which decreased the 2003 tax benefit. The effective rate for 2003 net of the MB Quart GmbH valuation reserve was 41.4%. The increase of 3.1% from 2002 to the adjusted 2003 rate was primarily due to the impact of MB Quart GmbH’s results at Germany’s higher tax rate and a new requirement to file taxes in California as a result of Rockford’s acquisition of NHT.

Quarterly Results of Operations

      Rockford’s sales on a quarterly basis reflect the seasonality of the mobile audio aftermarket business. Sales are generally greater during the first and second quarters of each calendar year and lower during the third and fourth quarters, with Rockford’s lowest sales typically occurring during the fourth quarter. Rockford’s NHT business and the consumer electronic chain and mass merchandise channels have seasonality that is somewhat different than the core business seasonality, with higher sales in the third and fourth quarters. Nevertheless, Rockford expects its business to remain seasonal for the foreseeable future.

      The following tables show selected consolidated quarterly statements of operations data derived from Rockford’s unaudited financial statements for each of the eight quarters ended December 31, 2004. These unaudited financial results were prepared on a basis consistent with the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated results of operations for those periods. Net sales and gross profit have been restated to reflect Rockford’s continuing operations. Financial information about Rockford’s discontinued operations may be found at Note 2 of the Notes to Consolidated Financial Statements set forth on page 38 of this Annual Report. The results of operations for any quarter are not necessarily indicative of the results of any future period.

Consolidated Statement of Operations Data

Liquidity and Capital Resources

      Rockford has financed its business primarily using existing capital, cash flows from operations, if any, proceeds from its recent private placement of convertible notes, and bank borrowings. Rockford’s cash flow used in operations was $6.4 million for 2004 compared to $11.6 million used in operations for 2003. The net loss accounts for Rockford’s primary use of cash.

      Rockford entered into a $35 million, 3-year asset based credit facility with Congress Financial Corporation (Western), as Agent, and Wachovia Bank, National Association, as Arranger, on March 29, 2004 and as amended on June 10, 2004 and December 30, 2004. This credit facility replaced the $30 million revolving credit facility previously maintained with Bank of America, N.A. and Bank One, Arizona, N.A. This credit facility is collateralized by substantially all of Rockford’s assets and has a variable interest rate of LIBOR plus 450 basis points or Prime plus 200 basis points.

      As of September 30, 2004, Rockford was in default under the Congress facility both because it did not reach the required EBITDA target established in the loan agreement as of September 30, 2004 and because it placed its German subsidiary, MB Quart GmbH, into receivership. Congress granted a waiver on November 12, 2004 that waived these defaults as of September 30, 2004. Rockford and Congress amended the credit facility in December 2004. The amendment waived past covenant violations, reset financial covenants for 2005, provided for additional liquidity of up to $2 million under certain conditions, and increased the interest rates for the facility. Rockford’s balance on the Congress facility was $15.5 million as of December 31, 2004, down from a balance of $25.4 million at June 30, 2004.

      As of June 10, 2004, Rockford closed agreements for the private placement of $12.5 million of 4.5% convertible senior subordinated secured notes due 2009 and warrants to purchase 649,810 shares of

common stock at $5.75 per share. The noteholders may convert the notes into Rockford’s common stock at any time before the scheduled maturity date of June 10, 2009. The conversion price was $5.29 per share, which represented a 15% premium over the closing price of Rockford’s common stock on June 9, 2004. If fully converted, the notes were scheduled to convert into 2,362,949 shares of Rockford’s common stock. Rockford has the right to automatically convert the notes into common stock if the common stock trades above a specified target price for a specified period. Rockford also may force the exercise of the warrants under certain circumstances prior to their expiration date.

      As of September 30, 2004, Rockford was in default under the indenture under which Rockford issued the convertible notes. The default was caused by the voluntary receivership of MB Quart GmbH. The holders of Rockford’s convertible notes waived the default on November 12, 2004. In connection with the waiver, the holders retroactively waived their right to be paid default interest and the interest rate on the notes remained at 4.5% (versus the 9.5% default interest rate). The noteholders waived the default in exchange for an amendment to the notes that reduced the conversion price from $5.29 per share to $4.61 per share. This will increase the number of shares of common stock issuable, if all of the notes are converted, from 2,362,949 shares to 2,711,497 shares. In addition, the original warrants issued were increased to allow the purchase of 1,187,500 shares of common stock versus the 590,737 shares available under the original agreement (excluding 59,073 warrants issued to Piper Jaffray & Co., the placement agent in the original transaction). The exercise price of the warrants, including the Piper Jaffray warrants, was also lowered from $5.75 to $3.73 per share. Finally, the agreement was amended to delete the provision that provided for the early termination of the note-holders’ second priority lien on certain assets if Rockford’s average monthly EBITDA for any twelve consecutive months commencing with the month ending June 30, 2004 is positive.

      Rockford anticipates, based on its cash flow forecast, that cash flow from operations at the expected level of operations for 2005 and 2006 and available borrowings under its credit facility will be adequate to meet Rockford’s requirements for current capital expenditures, working capital and interest payments for the next twelve months. Rockford anticipates that its operations will significantly improve compared to its operations during 2004, so that its cash requirements in 2005 and 2006 will be less than its cash requirements in 2004. Rockford has not budgeted for proceeds from non-core asset sales resulting from its strategic realignment, so that if received such proceeds should supplement Rockford’s cash resources.

      If Rockford’s operations fail to improve, or if Rockford is otherwise unable to satisfy its liquidity needs as anticipated, it could be forced to seek one or more financing alternatives. These alternatives could include reducing or delaying capital expenditures, borrowing additional funds, restructuring indebtedness, selling additional assets, reducing expenditures for new product development, and cutting other costs. Some of these alternatives might not prove to be available on acceptable terms; others may substantially interfere with Rockford’s business and prospects. Rockford cannot give assurance that satisfactory actions could be put into effect on reasonable terms. If it needs to take some or all of these actions, but is not able to do so, Rockford may not be able to satisfy its liquidity needs. Under such circumstances, Rockford might not be able to continue its business as currently anticipated.

      Rockford’s inventory position increased from $33.3 million at the end of 2003 to $34.0 million at the end of 2004. This inventory increase was due to an increase in inventories of Omnifi and new Rockford Fosgate products, partially offset by write-downs pertaining to Omnifi and other excess and obsolete inventory. Although an improvement from the middle of 2004, when inventory had increased substantially, Rockford’s inventory levels are still high and Rockford continues to pursue inventory management initiatives to reduce inventory levels. Rockford is confident that it is taking the correct steps to improve its inventory position and expects its inventory levels to decrease in 2005.

      Rockford had working capital of $25.3 million at December 31, 2004, compared to $38.1 million at December 31, 2003. The significant components of working capital at December 31, 2004 include:

      The Congress credit facility requires that Rockford maintain blocked lock box accounts, whereby Congress takes possession of all cash receipts on a daily basis and these amounts are applied to reduce Rockford’s outstanding debt. In accordance with EITF 95-22: Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement, Rockford has recorded the $15.5 million outstanding balance as at December 31, 2004 on the Congress credit facility as short-term. Rockford expects to maintain the facility for the entire three-year term.

      Investing activities generated cash of $2.0 million for 2004 versus a use of $6.7 million cash for 2003 primarily due to the sale of Rockford’s interest in SimpleDevices. Capital expenditures, the primary use of cash from investing activities, were $2.7 million in 2004 versus $4.9 million in 2003. Rockford continues to work to improve management of its capital spending and has imposed increased payback requirements for approval of capital spending. Rockford’s capital spending is primarily in tooling for specific product lines, general machinery and equipment to support manufacturing and computer hardware and software to support operations. Rockford does not anticipate significant changes in its future capital spending requirements, other than reductions resulting from its divestiture of non-core businesses and elimination of the capital spending required for those businesses.

Off Balance Sheet Arrangements

      Rockford does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities (VIEs), which would be established for the purpose of facilitating off-balance sheet arrangements. As of December 31, 2004, Rockford was not involved in any unconsolidated VIE transactions.

Contractual Obligations as of December 31, 2004

      Rockford had contractual obligations at December 31, 2004 due as follows:

      Rockford did not have any material outstanding noncancelable purchase obligations at December 31, 2004. Several of its sourcing agreements require Rockford to place monthly purchase orders, but do not require a minimum purchase quantity or dollar amount. Rockford does not anticipate significant liability in connection with these contractual requirements.

Critical Accounting Policies and Estimates

      The methods, estimates and judgments Rockford uses in applying its accounting policies have a significant impact on the results reported in its consolidated financial statements. Rockford evaluates its

estimates and judgments on an on-going basis. Rockford bases its estimates on historical experience and assumptions that Rockford believes to be reasonable under the circumstances. Rockford’s experience and assumptions form the basis for its judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what Rockford anticipates and different assumptions or estimates about the future could change its reported results. Rockford believes the following accounting policies are the most critical to Rockford, in that they are important to the portrayal of Rockford’s financial statements and they require Rockford’s most difficult, subjective or complex judgments in the preparation of its consolidated financial statements:

      Revenue Recognition. Rockford recognizes revenue pursuant to Staff Accounting Bulletin Nos. 101 and 104, Revenue Recognition in Financial Statements. Accordingly, Rockford recognizes revenue and records sales, net of related discounts, when all of the following criteria are met:

      Rockford sells almost all of its products F.O.B. place of shipment, so that upon shipment of products, the above criteria are met and revenue is recognized.

      Rockford also records reductions to revenue for estimated customer returns and additional sales incentive offerings, such as growth and volume incentive rebates and prompt pay discounts, based on historical rates. Should a greater proportion of customers return product or redeem incentives than estimated, Rockford may need to make additional reductions to revenue.

      Intangible Assets. On January 1, 2002, Rockford adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. When Rockford accounts for acquired businesses as purchases, it allocates purchase prices to the assets, definite-lived intangible assets, and liabilities acquired based on the estimated fair values on the respective acquisition dates. Based on these values, Rockford allocates any excess purchase price over the fair value of the net assets acquired to goodwill. As at December 31, 2004, Rockford has written off all remaining goodwill because of its impairment as outlined in the notes to Rockford’s financial statements.

      In assessing the recoverability of its goodwill and other intangibles, Rockford must make assumptions about estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, Rockford may be required to record impairment charges for these assets not previously recorded. Some factors Rockford considers important, which could trigger an impairment review, include the following:

      Rockford has tested goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step is to screen for potential impairment, while the second step measures the amount of the impairment, if any. Rockford performed the first of the required impairment tests for goodwill as at December 31, 2002, and a second at December 31, 2003. In each case, Rockford determined that its goodwill was not impaired and it was not necessary to undertake the second step in the two-step process. During 2004, as a result of its continued operating losses and its realignment decisions announced on September 21, 2004, Rockford concluded that it was necessary to perform an early impairment test. Based on the screening performed, Rockford determined that $5.6 million of its goodwill was impaired and wrote it off during 2004.

      Allowance for Doubtful Accounts. Rockford maintains an allowance for doubtful accounts, based on historical rates, for estimated losses resulting from the inability of its customers to make required payments.

The assessment of customers’ ability to pay generally includes direct contact with the customer, investigation into customers’ financial status, as well as consideration of customers’ payment history. If the financial condition of Rockford’s customers were to deteriorate, resulting in an impairment of their ability to make payments, Rockford might need to make additional allowances.

      Inventory. Rockford carries inventory at the lower of cost or market, computed using the weighted average method. For purposes of the lower of cost or market calculations, Rockford writes down obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Rockford reviews information such as quantity on hand versus forecasted use and inventory aging listings to assist in this assessment. If actual future demand or market conditions are less favorable than projected, Rockford may need to take additional inventory write-downs. Any write-downs are reflected in cost of sales in the period incurred. As a result of the realignment Rockford announced in 2004, Rockford took inventory write downs of approximately $8.8 million for 2004.

      Warranty. Rockford maintains a warranty reserve, based on historical rates, for costs associated with the repair or replacement of product that fails to meet its standard warranty against defects in material and workmanship. Should actual product failure rates differ from its estimates, it would need to make revisions to its estimated accruals.

      Income taxes. Rockford must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Rockford must assess the likelihood that it will be able to recover Rockford’s deferred tax assets. If recovery is not likely, Rockford must increase its provision, or decrease its benefit, by recording a valuation allowance against the deferred tax assets that Rockford estimates will not ultimately be recoverable. Based on Rockford’s review of its deferred tax assets at December 31, 2004, it determined that a valuation allowance in the amount of $14.4 million was required.

      Inflation. Inflation has not had a significant impact on Rockford’s operations since it operates in a market that requires continuing price decreases and Rockford has historically been able to insist on continuing price decreases from its suppliers. Rising metal prices and increasing transportation costs may have an impact on Rockford’s operations in 2005, if Rockford is not able to secure concessions from its suppliers.

      In December 2004, the FASB issued Statement No. 123 (FAS 123R), “Share-Based Payment,” effective beginning after June 15, 2005. FAS 123R supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and will require companies to recognize compensation expense, using a fair-value based method, for costs related to share-based payments including stock options and stock issued under employee stock purchase plans. Rockford will be required to implement FAS 123R no later than the quarter that begins July 1, 2005. Rockford’s adoption will be applied on a modified prospective basis and measured and recognized on July 1, 2005. Rockford is currently evaluating option valuation methodologies and assumptions in light of FAS 123R, and therefore cannot estimate the impact of Rockford’s adoption of FAS 123R at this time. These methodologies and assumptions may be different than those currently employed by Rockford in applying FAS 123, outlined in note 1 to Rockford’s financial statements.

      In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB 43, Chapter 4. SFAS No. 151 will require that abnormal amounts of idle capacity and spoilage costs be excluded from the cost of inventory and expensed when incurred. This standard also provides guidance for the allocation of fixed production overhead costs. This standard is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Rockford will adopt this standard in fiscal 2006. Rockford has not yet determined the impact, if any, this Statement will have on Rockford’s financial statements.

      In December 2004, the FASB issued SFAS 153, Exchanges of Non-monetary Assets, an amendment of APB No. 29, Accounting for Non-monetary Transactions. SFAS 153 requires exchanges of productive assets

to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. SFAS 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Rockford does not expect the adoption of this standard to have a material effect on its financial position, results of operations or cash flows.

      Rockford’s primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. Its holdings of cash equivalents are subject to interest rate fluctuations, but Rockford believes this risk is immaterial due to the short-term nature of these investments and the essentially zero cash balances it carries. The outstanding balances on its credit facilities are also subject to interest rate fluctuations.

      The value of the U.S. dollar affects Rockford’s financial results. Changes in exchange rates may positively or negatively affect revenues, gross margins, operating expenses and shareholders’ equity as expressed in U.S. dollars. Historically, Rockford’s exposure to currency exchange rate fluctuations were modest due to the fact that it sold its products primarily in U.S. dollars and held only a small percentage of its assets outside the U.S. However, Rockford conducts a growing portion of its business in foreign currencies and it is increasing its billings in local currencies in Canada and Europe.

      In recent years, Rockford has sourced an increasing percentage of its products, or of raw materials and parts for its products, from outside the United States. Most of these raw materials and parts are sourced in the Far East, principally in China. Although most of these purchases are denominated in dollars, an extended decline in the value of the dollar may affect the terms and prices on which Rockford is able to purchase from its foreign suppliers and may, therefore, increase Rockford’s costs.

      During the first quarter of 2003, Rockford’s Board of Directors approved and Rockford began to implement a new foreign currency hedging policy. The goal of the program was to provide stability to the U.S. dollar values of non-function currency cash flows. Although it is impossible to eliminate all currency risk, implementation of this program was intended to mitigate the risk of significant changes in earnings due to short-term foreign exchange fluctuations. During the year ended December 31, 2003, Rockford entered into several Canadian dollar forward contracts to hedge foreign denominated assets with foreign denominated liabilities in order to mitigate the risk of significant changes in earnings due to short-term foreign exchange fluctuations. Changes in the fair value of derivatives were recognized through net loss. Rockford did not engage in any hedging activity during 2004 because it determined that it had more important uses for its available cash. At December 31, 2004, Rockford did not have any outstanding forward contracts.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Rockford Corporation

      We have audited the accompanying consolidated balance sheets of Rockford Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index to Consolidated Financial Statements and Schedule. These financial statements and schedule are the responsibility of Rockford’s management. Our responsibility is to express an opinion on these financial statements and 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rockford Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Phoenix, Arizona

April 1, 2005

ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

See accompanying notes.

ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

See accompanying notes.

ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

See accompanying notes.

ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS