##### Table of Contents



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, 2006
  Commission File Number
    000-30138
      ROCKFORD CORPORATION
 (Exact name of Registrant as
    Specified in Its Charter)
  Arizona

86-0394353(State or Other Jurisdiction
    of
    Incorporation or Organization)

(IRS Employer
    Identification No.)   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)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2).
 o o þ
  Rule 12b-2) o þ
    Form 10-K.




---



##### 



ROCKFORD
    CORPORATIONFORM 10-K
    DECEMBER 31, 2006
  
  TABLE OF
    CONTENTS
  Securities and Exchange CommissionItem Number and Description

PagePART IItem 1.

Business


3Item 1A.

Risk
    Factors


10Item 2.

Properties


16Item 3.

Legal
    Proceedings


17Item 4.

Submission of
    Matters to a Vote of Security Holders


17PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters,
    and Issuer Purchases of Equity Securities


18Item 6.

Selected Financial
    Data


21Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Continuing Operations


22Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


31Item 8.

Financial
    Statements and Supplementary Data


32Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


56Item 9A.

Controls and
    Procedures


56Item 9B.

Other
    Information


56PART IIIItem 10.

Directors and
    Executive Officers and Corporate Governance


56Item 11.

Executive
    Compensation


56Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


57Item 13.

Certain
    Relationships and Related Transactions, and Director
    Independence


57Item 14.

Principal
    Accounting Fees and Services


57PART IVItem 15.

Exhibits, Financial
    Statement Schedules...


57Signatures


61Ex-10.75Ex-10.76Ex-10.77Ex-10.78Ex-21Ex-23.1Ex-31.1Ex-31.2Ex-32      
    Rockfords estimate that the number of shares held by
    non-affiliates as of March 26, 2007 was approximately
    4,836,567; and
    $4.19 per share, the price at which Rockfords shares
    were last sold as of June 30, 2006, as reported by The
    NASDAQ Stock Market. June 30, 2006, is the last business
    day of Rockfords most recently completed second fiscal
    quarter.   1




---



##### Table of Contents



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. Our 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. The risk factors noted
    throughout this report, particularly in the discussion in
    Item 1A, and other risk factors that we have not
    anticipated or discussed, could cause our actual results to
    differ significantly from those anticipated in our
    forward-looking statements.
 2




---



##### Table of Contents



PART I  Item 1.
    Business  Rockford
    Business
        Rockfords
    Brands
    
    Rockford Fosgate.  Under the Rockford Fosgate
    brand, Rockford offers distinctive product lines that produce
    powerful, high quality sound. Rockford Fosgate mobile audio
    products are marketed under two primary product lines:  
    Punch Series  the line for the majority of
    Rockfords amplifiers, subwoofers, speakers and
    enclosures; and
    Power Series  the line for Rockfords
    higher performing amplifiers, subwoofers, and speakers.    
    Rockford Acoustic Design.  Rockford recently
    introduced Rockford Acoustic Design as a new premium brand,
    primarily for OEM products. Mitsubishi introduced an automobile
    line in 2006 with a Rockford Acoustic Design branded audio
    system; and
    Lightning Audio.  Rockford sells amplifiers,
    subwoofers, speakers, and accessories under the Lightning Audio
    brand. Lightning Audio products are generally more moderately
    priced than Rockford Fosgate products.  InstallEdge.com.
  Rockford
    Strategy
    
    Continue to introduce new and technologically innovative mobile
    audio products that embody distinctive Rockford sound qualities; 3




---



##### Table of Contents




    Expand Rockfords mobile audio OEM business; and
    Broaden Rockfords distribution by entering new
    distribution channels and increasing penetration of
    Rockfords existing distribution channels, both in the U.S.
    and internationally.    Rockford
    Products
  Percent
    of Sales by Product Class
    Year Ended December 31,2004


2005


2006Product Class:Amplifiers


39.3
%


43.8
%


45.8
%Speakers


39.4



35.4



34.9Accessories


10.7



10.7



12.8Others(1)


10.6



10.1



6.5Total


100.0
%


100.0
%


100.0
%     (1)
    
    Includes source units, enclosures, signal processors, digital
    media products, and other products. No single product class in
    this group accounted for more than 10% of Rockfords sales
    in any of these years.  Form 10-K.
  Aftermarket
    Mobile Audio Products
    
    Amplifiers.  Amplifiers increase the voltage
    and current coming from the source unit, providing more power
    than possible from a source unit alone. Amplifiers are essential
    for a high performance mobile audio system, particularly for
    consumers who desire strong bass (low frequency) performance;
    Subwoofers and Speakers.  Subwoofers and
    speakers accept a signal from a source unit or amplifier and
    translate it into sound. Subwoofers are speakers that are eight
    inches or greater in diameter and are designed to play bass
    frequencies. Speakers less than eight inches in diameter are not
    subwoofers and are designed to play higher frequencies.
    Aftermarket subwoofers and speakers provide dramatically
    improved sound quality compared to most factory installed mobile
    audio systems and are often the single most important
    improvement consumers can make to their mobile audio systems;
    Accessories.  Accessories are the additional
    items required to install and use mobile audio products.
    Accessories include amplifier wiring kits, fuses, circuit
    breakers, interconnect cables, speaker cables, stiffening
    capacitors, battery clamps, connectors, adaptors, and
    carpet/fabric/surface applications. Accessories make
    Rockfords products compatible with factory-installed
    components and improve the performance of a mobile audio
    system; and
    Enclosures.  Enclosures are used to enhance the
    bass performance of subwoofers and to position speakers in
    locations that produce better sound. 4




---



##### Table of Contents



Amplifiers:
    
     Amplifiers under the Punch Series and Power Series
    lines, with rated power from 200 to 4,000 watts, and minimum
    advertised prices from $200 to $2,500. Rockfords
    amplifiers include 1, 2 and 4 channel alternatives, giving
    consumers the ability to select an optimum configuration for
    their system. In the amplifier category Rockford has also
    introduced a Hybrid Technology 15,000-watt amplifier, the
    limited edition HT15kW, at a minimum advertised price of
    $25,000, and the new 3Sixty Interactive Signal Processors in two
    models at minimum advertised prices of $399 and $699;Subwoofers and
    Speakers:
    
     Subwoofers and speakers under Rockfords Punch
    Series and Power Series lines, with minimum advertised prices
    from $60 to $1,800;Accessories:
    
     Accessories under Rockfords Connecting Punch
    line, including amplifier installation kits, interconnect and
    speaker cables, carpet/fabric/surface applications and
    stiffening capacitors; andEnclosures:
    
     Subwoofer enclosures, including loaded
    enclosures that include a subwoofer and, in some cases, an
    amplifier, at minimum advertised prices from $149 to $399.    Amplifiers:
    
     Amplifier models with rated power from 60 to 2,000
    watts and minimum advertised prices from $100 to $1,000;Subwoofers and
    Speakers:
    
     Subwoofers and speakers with minimum advertised
    prices from $30 to $600; andAccessories:
    
     Accessories, including interconnect and speaker
    cables, stiffening capacitors, battery clamps and installation
    kits.    OEM
    Products
      New
    Products
     5




---



##### Table of Contents



Engineering
    And Product Development
      Sales,
    Marketing And Distribution
    
    Making regular calls to dealers and providing them with
    demonstration products,
    point-of-purchase
    displays and other marketing materials;
    Training dealer sales and installation personnel. For 2007
    Rockford is re-emphasizing its Rockford Technical Training
    Institute training programs that are designed to provide
    improved skills to dealer personnel;
    Regular interaction with industry press editors who are often
    the opinion makers for salespeople at the retail level as well
    as end users;
    Support for competitors in regional and national car audio shows
    and competitions;
    Participation in professional and consumer trade shows. The
    annual Consumer Electronics Show, held each January in Las
    Vegas, has been one of Rockfords largest show expenditures
    for many years. Rockford announced at the 2007 show that it
    would not attend the 2008 show. Rockford has concluded that the
    money spent at CES does not adequately focus on its after-market
    mobile audio customers and believes these funds will be better
    used on an event focused on Rockfords after-market
    retailers. Rockford is planning such an event for late 2007.
    Rockfords show budget for 2007 will increase as a result
    of this new event, since it will
    double-up
    with the 2007 CES show that took place in January 2007;
    Maintaining product and brand information for consumers and
    retailers on its web sites; and
    Initiating targeted advertising in periodicals read by potential
    consumers.  www.rockfordcorp.com, www.rockfordfosgate.com, www.lightningaudio.com,
    www.installedge.com, www.rockfordacousticdesign.com
  Distribution
  North American Distribution.
   6




---



##### Table of Contents



International Distribution.
    Competition
      
    Mobile Audio Amplifiers:  Alpine, JL Audio,
    Kenwood, Kicker, MTX, Dual, Pioneer and Sony;
    Mobile Audio Subwoofers and Speakers:  Alpine,
    Boston Acoustics, Infinity, JL Audio, Kenwood, Kicker, MTX,
    Pioneer and Sony;
    Mobile Audio Accessories:  Monster Cable, AAMP
    America and Stinger;      
    integrated additional functions such as navigation into vehicle
    electronic systems;
    changed the designs of their cars in ways that make (or are
    perceived to make) installation of aftermarket audio products
    more difficult or expensive; and
    somewhat improved the quality of their mobile audio offerings. 7




---



##### Table of Contents



Manufacturing
            Intellectual
    Property
     Rockford
    Fosgate®

 Lightning
    Audio® Rockfords
    Diamond R
    logo®

 Strike® The
    Punch®

 Storm® Rockford
    Acoustic
    Design(TM)

 Bolt® 3Sixty(TM)   Significant
    Customers and Seasonality
   8




---



##### Table of Contents



16-24 year
  Product
    Support
        Information
    Systems
    Employees
   9




---



##### Table of Contents



Environmental
    Compliance
        Item 1A.
    Risk
    Factors  RISK
    FACTORS THAT MAY AFFECT ROCKFORDS OPERATING RESULTS,
    BUSINESS PROSPECTS AND STOCK PRICE
  Before you buy or sell Rockford stock, you should be aware
    that there are risks, including those described below and others
    Rockford has not anticipated or discussed. You should consider
    carefully these and other risk factors, together with all of the
    other information included in Rockfords filings with the
    SEC and Rockfords periodic press releases, before you
    decide to buy or sell shares of Rockfords common stock.
  As you consider these risk factors, Rockford also calls your
    attention to Rockfords statements about Forward Looking
    Statements and Risk Factors before Part I of this Annual
    Report.
  Rockfords
    products may not satisfy shifting consumer demand or compete
    successfully with competitors products.
    Any
    decrease in demand for Rockford amplifiers or speakers could
    significantly decrease sales.
    The
    loss of Best Buy or Nissan as a customer or significant
    reductions in their purchases of Rockfords products would
    reduce sales.
   10




---



##### Table of Contents



Rockford
    may lose sales and market share if it is unable to compete
    successfully against current and future competition, including
    products offered by aftermarket suppliers and by auto
    manufacturers.
        If
    Rockford does not continue to develop, introduce and achieve
    market acceptance of new and enhanced products, sales may
    decrease.
        Rockford
    may lose market share and its brand image may erode as Rockford
    changes distribution channels for its mobile audio
    products.
  audio/video
   11




---



##### Table of Contents




    Rockford may alienate its specialty dealer
    base.  Some specialty dealers or audio/video
    retailers may react to Rockfords new strategies by
    reducing their purchases or even replacing Rockfords
    products with competing products. Reduced specialty dealer or
    audio/video retailer loyalty could reduce Rockfords market
    share because specialty dealers and audio/video retailers
    continue to hold a large share of the market and contribute
    substantially to Rockfords brand image among its core
    consumers; and
    Rockfords brand image may erode.  Selling
    in less-specialized distribution channels or through car dealers
    may erode Rockfords brand image, which could decrease
    Rockfords product prices and profit margins.    Seasonality
    of mobile audio sales causes Rockfords quarterly sales to
    fluctuate and may affect the trading price of its
    stock.
    Rockfords
    financial results may fluctuate significantly, making financial
    forecasting difficult and making Rockfords stock price
    volatile.
    
    The level of product, price and dealer competition;
    Size and timing of product orders and shipments, particularly by
    customers such as Best Buy, Wal-Mart, Nissan and Mitsubishi;
    Rockfords ability to develop new products and product
    enhancements that respond to changes in technology and consumer
    preferences while controlling costs;
    Weather conditions, which affect consumers willingness to
    install products;
    Capacity and supply constraints or difficulties; and
    Timing of Rockfords marketing programs and those of its
    competitors.      A
    decline in discretionary spending likely would reduce
    Rockfords sales.
     12




---



##### Table of Contents




    General business conditions;
    Employment levels, especially among Rockfords core
    consumers (who tend to be less experienced workers and are
    particularly subject to layoff if employment levels decline);
    Consumer confidence in future economic conditions;
    Energy prices; and
    Interest and tax rates.    If
    Rockford fails to execute its strategy successfully, its
    financial condition could be seriously harmed.
    
    Retain and hire skilled, competent employees;
    Improve coordination among Rockfords technical, product
    development, manufacturing, sales and financial
    departments; and
    Maintain Rockfords financial, operational and managerial
    systems and controls.    Rockford
    relies upon debt financing for a substantial part of its working
    capital; defaults on its debt or the unavailability of
    additional financing could make it impossible to carry out
    Rockfords business as currently structured.
    If
    Rockford fails to manage its inventory effectively, Rockford
    could incur additional costs or lose sales.
   13




---



##### Table of Contents



Rockfords
    product supplies and international operations may be harmed by
    factors including political instability, currency exchange rates
    and changes in regulations that govern international
    transactions.
    
    Changes in tariff regulations;
    Political instability, war, terrorism and other political risks;
    Foreign currency exchange rate fluctuations;
    Establishing and maintaining relationships with local
    distributors and dealers;
    Transitioning direct sales to local distributors;
    Lengthy shipping times and accounts receivable payment cycles;
    Import and export licensing requirements;
    Compliance with a variety of foreign laws and regulations,
    including unexpected changes in taxation and regulatory
    requirements;
    Greater difficulty in safeguarding intellectual property than in
    the U.S.; and
    Difficulty in staffing and managing geographically dispersed
    operations.    Loss
    of an international distributor may disrupt Rockfords
    sales.
    Rockford
    may incur additional costs or reduced sales as it transitions
    from a direct distribution system to local distributors in its
    international markets
    Currency
    fluctuations may reduce the profitability of Rockfords
    foreign sales.
   14




---



##### Table of Contents



If
    Rockfords supplies of finished goods or components are
    interrupted, it may be unable to deliver its products to its
    customers.
        Rockford
    may be unable to retain and attract key employees, which could
    impair Rockfords business.
    If
    Rockford is unable to enforce or defend its ownership and use of
    intellectual property, Rockfords business may
    decline.
      Rockford
    could suffer from internal control deficiencies that may result
    in a reduction in its stock price.
   15




---



##### Table of Contents



Rockfords
    executive officers and directors retain substantial control of
    Rockford, which may limit the liquidity and market price of its
    common stock.
    Many
    of Rockfords shares are available for resale without
    significant restrictions. Their sale or potential sale may
    reduce Rockfords stock price.
    Rockfords
    anti-takeover provisions could affect the value of
    Rockfords stock.
    Item 2.
    Properties      ApproximateFunction

Location

Square Footage


Lease ExpirationCorporate headquarters and
    research and development

Tempe, Arizona


30,000


September 30, 2009Information systems

Tempe, Arizona


10,000


September 30, 2010Manufacturing and purchasing

Tempe, Arizona


22,000


December 31, 2008Warehousing, sales and customer
    service

Tempe, Arizona


25,000


December 31, 2008Warehousing

Gilbert, Arizona


91,000


July 31, 2008Manufacturing, research and
    development,purchasing and administration

Grand Rapids, Michigan


163,000
(1)

March 31, 2009Total




341,000     (1)
    
    Rockford entered into an agreement to reduce the amount of
    square footage of the Grand Rapids, Michigan facility to
    83,000 square feet as of July 1, 2007, and plans to
    phase out manufacturing at this location before that date. 16




---



##### Table of Contents



Item 3.
    Legal
    Proceedings      
    $750,000 was paid during February 2007, within 5 days after
    signing of a definitive settlement agreement;
    $225,500 will be paid on August 1, 2007; and
    $212,500 each will be paid on February 1, August 1,
    and December 1, 2008.          Item 4.
    Submission
    of Matters to a Vote of Security Holders   17




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities    High


LowFor the quarter ended:December 31, 2006

$
3.50


$
1.48September 30, 2006

$
4.19


$
3.20June 30, 2006

$
4.19


$
3.21March 31, 2006

$
4.20


$
2.86December 31, 2005

$
3.49


$
2.55September 30, 2005

$
3.86


$
2.61June 30, 2005

$
3.92


$
2.14March 31, 2005

$
3.07


$
1.97      18




---



##### Table of Contents



Stock Performance Values($)December 31,


December 31,


December 31,


December 31,


December 31,


December 31,2001


2002


2003


2004


2005


2006Rockford Corp


100



69



61



24



38



29Russell 2000


100



80



117



139



145



171S & P Household Audio and
    Video


100



73



71



86



81



85   Form 10-K
 19




---



##### Table of Contents



Sales of
    Unregistered Securities
    Form S-3
    Equity
    Compensation Plan Information
  Number of SecuritiesNumber of Securities to be


Weighted Average


Remaining Available forIssued Upon Exercise of


Exercise Price of


Future Issuance Under EquityOutstanding Options,


Outstanding Options,


Compensation Plans (ExcludingWarrants and Rights


Warrants and Rights


Securities Reflected in Column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved
    by security holders


1,898,064


$
4.15



50,310Equity compensation plans not
    approved by security holders


59,073



3.73



1,957,137


$
4.14



50,310  20




---



##### Table of Contents



Item 6.
    Selected
    Financial Data    Years Ended December 31,2002


2003


2004


2005


2006(In thousands, except per share data)Consolidated Statements of
    Operations:Net sales

$
162,805


$
157,728


$
160,857


$
135,682


$
102,776Cost of goods sold


105,079



109,446



129,092



96,231



73,919Gross profit


57,726



48,282



31,765



39,451



28,857Operating expenses:Sales and marketing


27,268



28,823



27,461



22,845



16,772General and administrative


15,509



17,470



25,782



13,913



16,753Research and development


4,735



7,149



6,415



2,823



3,218Total operating expenses


47,512



53,442



59,658



39,581



36,743Operating income (loss)


10,214



(5,160
)


(27,893
)


(130
)


(7,886
)Interest and other expense, net


52



252



2,826



2,593



1,243Income (loss) from continuing
    operations before income taxes


10,162



(5,412
)


(30,719
)


(2,723
)


(9,129
)Income tax expense (benefit)


3,837



(2,483
)


4,597







(437
)Income (loss) from continuing
    operations


6,325



(2,929
)


(35,316
)


(2,723
)


(8,692
)Discontinued operations:Loss from disposal of discontinued
    operations, net of taxes










(70
)


(1,019
)


Loss from discontinued operations,
    net of taxes


(45
)


(2,735
)


(3,469
)


(345
)


(155
)Total loss from discontinued
    operations


(45
)


(2,735
)


(3,539
)


(1,364
)


(155
)Net income (loss)

$
6,280


$
(5,664
)

$
(38,855
)

$
(4,087
)

$
(8,847
)Income (loss) per common share:Income (loss) from continuing
    operationsBasic

$
0.74


$
(0.33
)

$
(3.90
)

$
(0.29
)

$
(0.92
)Diluted

$
0.68


$
(0.33
)

$
(3.90
)

$
(0.29
)

$
(0.92
)Loss from discontinued operationsBasic

$
(0.01
)

$
(0.31
)

$
(0.39
)

$
(0.15
)

$
(0.02
)Diluted

$
(0.00
)

$
(0.31
)

$
(0.39
)

$
(0.15
)

$
(0.02
)Net income (loss):Basic

$
0.74


$
(0.64
)

$
(4.29
)

$
(0.44
)

$
(0.94
)Diluted

$
0.68


$
(0.64
)

$
(4.29
)

$
(0.44
)

$
(0.94
)Weighted average shares:Basic


8,540



8,866



9,066



9,258



9,388Diluted


9,301



8,866



9,066



9,258



9,388Consolidated Balance Sheet Data:Working capital

$
52,354


$
38,138


$
25,776


$
23,217


$
16,479Total assets


101,774



112,083



80,353



52,298



44,555Current portion of long-term debt
    and capital lease obligations


1,253



24,382



18,204



6,109



11,402Long-term debt and capital lease
    obligations


10,027







11,937



9,187



9,937Total liabilities


35,295



48,393



57,768



33,667



34,310Shareholders equity


65,546



63,207



22,585



18,631



10,245  21




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Continuing Operations    Results
    of Operations
  Overview
            
    overall softness in the aftermarket channel;
    aggressive pricing and promotional activity by competitors in
    the aftermarket channel; and
    continuing distribution channel shifts.   22




---



##### Table of Contents



Year Ended December 312004


2005


2006Net sales


100.0
%


100.0
%


100.0
%Cost of goods sold


80.3



70.9



71.9Gross profit


19.7



29.1



28.1Operating expenses:Sales and marketing


17.1



16.8



16.3General and administrative


16.0



10.3



16.3Research and development


3.9



2.1



3.2Total operating expenses


37.0



29.2



35.8Operating loss


(17.3
)


(0.1
)


(7.7
)Interest and other expense, net


1.8



1.9



1.2Loss from continuing operations
    before income taxes


(19.1
)


(2.0
)


(8.9
)Income tax expense (benefit)


2.9







(0.4
)Loss from continuing operations


(22.0
)


(2.0
)


(8.5
)Discontinued operations:Loss from disposal of discontinued
    operations






(0.7
)


Loss from discontinued operations


(2.2
)


(0.3
)


(0.1
)Total loss from discontinued
    operations


(2.2
)


(1.0
)


(0.1
)Net loss


(24.2
)%


(3.0
)%


(8.6
)%           Geographic
    Distribution of Sales
    Year Ended December 31,Region(1)

2004


2005


2006


2006(In thousands, excluding % column)United States

$
133,682


$
112,657


$
86,017



83.7
%Other Americas


9,295



9,438



8,007



7.8
%Europe


12,544



9,042



5,316



5.2
%Asia


5,336



4,545



3,436



3.3
%Total sales

$
160,857


$
135,682


$
102,776



100.0
%     (1)
    
    Sales are attributed to geographic regions based on the location
    of customers. No single foreign country accounted for greater
    than 10% of Rockfords sales. 23




---



##### Table of Contents



In the following discussion, certain increases or decreases
    may differ due to rounding.
  Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Net Sales.
    Gross Profit.
  Sales and Marketing Expenses.
  General and Administrative Expenses.
  Research and Development Expenses.
  Operating Loss From Continuing
    Operations.
  Interest and Other Expense.
  Income Tax Expense (benefit).
 24




---



##### Table of Contents



Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Net Sales.
    Gross Profit. Q-Logic
  Sales and Marketing Expenses.
  General and Administrative Expenses.
  Research and Development Expenses.
  Operating Loss From Continuing
    Operations.
  Interest and Other Expense.
  Income Tax Expense (Benefit).
 25




---



##### Table of Contents



Quarterly
    Results of Operations
      Consolidated
    Statement of Operations Data
  Three Months EndedMar. 31,


June 30,


Sept. 30,


Dec. 31,


Mar. 31,


June 30,


Sept. 30,


Dec. 31,2005


2005


2005


2005


2006


2006


2006


2006(In thousands, except per share data)Net sales

$
39,616


$
37,917


$
30,213


$
27,936


$
29,928


$
31,668


$
21,217


$
19,963Gross profit


11,324



11,728



9,327



7,072



7,858



10,373



6,016



4,610Income (loss) from continuing
    operations


(491
)


(277
)


687



(2,642
)


(2,059
)


1,026



(2,919
)


(4,740
)Income (loss) from discontinued
    operations


(117
)


(26
)


(1,105
)


(116
)


6



(114
)


(47
)


Net income (loss)

$
(608
)

$
(303
)

$
(418
)

$
(2,758
)

$
(2,053
)

$
912


$
(2,966
)

$
(4,740
)Net income (loss) per common
    share(1)Basic

$
(0.07
)

$
(0.03
)

$
(0.05
)

$
(0.30
)

$
(0.22
)

$
0.09


$
(0.32
)

$
(0.50
)Diluted

$
(0.07
)

$
(0.03
)

$
(0.04
)

$
(0.30
)

$
(0.22
)

$
0.09


$
(0.32
)

$
(0.50
)     (1)
    
    The sum of quarterly net income (loss) per common share does not
    equal annual net income (loss) per common share due to changes
    in the weighted average number of common shares outstanding.  Liquidity
    and Capital Resources
    4-year
 26




---



##### Table of Contents




    There were no net cash and cash equivalents at December 31,
    2006 and 2005. Due to the daily sweep of cash by Wachovia,
    described below, Rockford has reclassified its cash and cash
    equivalents to net against its current debt balance.
    Rockfords net accounts receivable were $19.2 million
    or 67 days sales outstanding (DSO) at December 31,
    2006 compared to $24.9 million or 66.5 DSO at
    December 31, 2005. The decrease in accounts receivable is
    due to lower sales;
    Net inventory increased $1.0 million, from
    $18.6 million at December 31, 2005 to
    $19.6 million at December 31, 2006. This inventory
    increase was primarily due to the
    build-up of
    inventory for Rockfords 27




---



##### Table of Contents



new product introduction for 2007 partially offset by lower
    sales and additional write-downs relating to excess and obsolete
    inventory; and  
    Accounts payable decreased $3.1 million, from
    $10.2 million at December 31, 2005 to
    $7.1 million at December 31, 2006. This decrease was
    primarily due to lower inventory purchases.  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
    Off
    Balance Sheet Arrangements
    Contractual
    Obligations as of December 31, 2006
    Payments Due by PeriodLess Than








More ThanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


5 Years(In thousands)Asset-based credit facility

$
10,400






$
10,400







Notes payable

$
9,500






$
9,500







Operating leases

$
3,839


$
1,753


$
1,986


$
100



Capital leases

$
143


$
43


$
100







     Critical
    Accounting Policies and Estimates
   28




---



##### Table of Contents



Revenue Recognition. Revenue Recognition in Financial Statements.
  
    Persuasive evidence of an arrangement exists;
    Ownership has transferred to the customer;
    The price to the customer is fixed or determinable; and
    Collectibility is reasonably assured.      Share-Based Compensation. Share-Based Payment
  Intangible Assets. Business
    Combinations, Goodwill and
    Other Intangible Assets.
  Allowance for Doubtful Accounts.
  Inventory.
  Warranty.
 29




---



##### Table of Contents



Income taxes.
  Inflation.
  New
    Accounting Standards
  Accounting for Uncertainty in Income Taxes: an
    interpretation of FASB Statement No. 109. Accounting for
    Income Taxes.
  Staff Accounting
    Bulletin No. 108
  Fair Value Measurements.
 30




---



##### Table of Contents



Item 7A.  Quantitative
    and Qualitative Disclosures About Market Risk         31




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
  
  Consolidated Financial Statements
    of Rockford Corporation and SubsidiariesReport of Independent Registered
    Public Accounting Firm


33Consolidated Balance Sheets as at
    December 31, 2005 and 2006


34Consolidated Statements of
    Operations for the years ended December 31, 2004, 2005 and
    2006


35Consolidated Statements of
    Shareholders Equity for the years ended December 31,
    2004, 2005 and 2006


36Consolidated Statements of Cash
    Flows for the years ended December 31, 2004, 2005 and 2006


37Notes to Consolidated Financial
    Statements


38Financial Statement Schedule:
    Schedule II  Valuation and Qualifying Accounts


57   32




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              33




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    BALANCE SHEETS

(In thousands, except share data)  December 31,2005


2006ASSETSCurrent assets:Cash and cash equivalents

$



$
Accounts receivable, less
    allowances of $2,307 and $1,267 at December 31, 2005 and
    2006, respectively


24,855



19,242Inventories


18,618



19,612Income taxes receivable


168



32Prepaid expenses and other


3,767



1,966Current assets of discontinued
    operations


289



Total current assets


47,697



40,852Property and equipment, net


3,104



2,487Other assets


1,497



1,216Total assets

$
52,298


$
44,555LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
10,182


$
7,094Accrued salaries and incentives


1,317



1,485Accrued warranty and returns


3,185



2,199Other accrued expenses


3,687



2,193Current portion of capital leases
    and other long-term liabilities






1,002Asset-based credit facility


6,109



10,400Total current liabilities


24,480



24,373Notes payable, less unaccreted
    discount of $313 and $222 at December 31, 2005 and 2006,
    respectively


9,187



9,278Long-term portion of capital lease
    and other long-term liabilities






659Total liabilities


33,667



34,310Shareholders equityCommon stock, $.01 par value.
    Authorized shares  40,000,000 Issued
    shares  9,384,220 and 9,390,970 shares at
    December 31, 2005 and 2006, respectively


94



94Additional paid-in capital


37,548



37,995Retained deficit


(19,408
)


(28,255
)Accumulated other comprehensive
    income


397



411Total shareholders equity


18,631



10,245Total liabilities and
    shareholders equity

$
52,298


$
44,555    34




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF OPERATIONS

(In thousands, except per share data)  Year Ended December 31,2004


2005


2006Net sales

$
160,857


$
135,682


$
102,776Cost of goods sold


129,092



96,231



73,919Gross profit


31,765



39,451



28,857Operating expenses:Sales and marketing


27,461



22,845



16,772General and administrative


25,782



13,913



16,753Research and development


6,415



2,823



3,218Total operating expenses


59,658



39,581



36,743Operating loss


(27,893
)


(130
)


(7,886
)Interest expense


2,090



2,009



1,366Other expense (income)


736



584



(123
)Loss from continuing operations
    before income taxes


(30,719
)


(2,723
)


(9,129
)Income tax expense (benefit)


4,597







(437
)Loss from continuing operations


(35,316
)


(2,723
)


(8,692
)Discontinued operations:Loss from disposal of discontinued
    operations, net of taxes


(70
)


(1,019
)


Loss from discontinued operations,
    net of taxes


(3,469
)


(345
)


(155
)Total loss from discontinued
    operations


(3,539
)


(1,364
)


(155
)Net loss

$
(38,855
)

$
(4,087
)

$
(8,847
)Loss per common share:Loss from continuing operationsBasic

$
(3.90
)

$
(0.29
)

$
(0.92
)Diluted

$
(3.90
)

$
(0.29
)

$
(0.92
)Loss from discontinued operationsBasic

$
(0.39
)

$
(0.15
)

$
(0.02
)Diluted

$
(0.39
)

$
(0.15
)

$
(0.02
)Net lossBasic

$
(4.29
)

$
(0.44
)

$
(0.94
)Diluted

$
(4.29
)

$
(0.44
)

$
(0.94
)Weighted average shares:Basic


9,066



9,258



9,388Diluted


9,066



9,258



9,388    35




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY

(In thousands)  AccumulatedAdditional


Retained


OtherCommon Stock


Paid-In


Earnings


ComprehensiveShares


Amount


Capital


(Deficit)


Income


TotalBalance at December 31, 2003


9,011


$
90


$
36,228


$
23,534


$
3,355


$
63,207Currency translation


















(2,870
)


(2,870
)Net loss














(38,855
)






(38,855
)Comprehensive loss






















(41,725
)Exercise of stock options,
    including tax benefit of $16


151



2



300











302Issuance of shares for employee
    stock purchase plan


43







152











152Warrants issued with convertible
    notes










649











649Balance at December 31, 2004


9,205



92



37,329



(15,321
)


485



22,585Currency translation


















(88
)


(88
)Net loss














(4,087
)






(4,087
)Comprehensive loss






















(4,175
)Exercise of stock options,
    including tax benefit of $0


116



1



246











247Issuance of shares for employee
    stock purchase plan


63



1



121











122Repurchase of warrants issued with
    convertible notes










(148
)










(148
)Balance at December 31, 2005


9,384



94



37,548



(19,408
)


397



18,631Currency translation


















14



14Net loss














(8,847
)






(8,847
)Comprehensive loss






















(8,833
)Exercise of stock options,
    including tax benefit of $0


7







16











16Share-based compensation










431











431Balance at December 31, 2006


9,391


$
94


$
37,995


$
(28,255
)

$
411


$
10,245    36




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2004


2005


2006(In thousands)Cash flow from continuing
    operating activities:Net loss from continuing operations

$
(35,316
)

$
(2,723
)

$
(8,692
)Adjustments to reconcile net loss
    from continuing operations to net cash provided by (used in)
    operating activities:Depreciation and amortization


4,464



3,891



2,555Share based compensation expense










431Loss on legal settlement










1,518Gain on divestiture of business










(142
)Gain on sale of brand rights






(844
)


Write-off of assets to fair market
    value






814



Net gain on buyback of notes and
    warrants






(112
)


Deferred income taxes


7,131







Impairment of goodwill


5,017







Loss on sale of property and
    equipment


1,343



44



153Provision for doubtful accounts


1,841



388



856Provision for inventory


8,735



549



974Changes in operating assets and
    liabilities:Accounts receivable


(1,502
)


6,457



3,300Inventories


(10,119
)


12,275



(2,768
)Prepaid expenses and other


(355
)


(411
)


2,136Accounts payable


7,489



(4,683
)


(2,534
)Accrued salaries and incentives


(472
)


(85
)


168Accrued warranty and returns


(1,281
)


(1,514
)


(935
)Income taxes payable (receivable)


1,895



772



135Other accrued expenses


1,543



(2,120
)


(1,279
)Net cash provided by (used in)
    operating activities


(9,587
)


12,698



(4,124
)Cash flow from continuing
    investing activities:Purchases of property and equipment


(2,213
)


(948
)


(1,505
)Proceeds from sale of property and
    equipment


18



125



78Net proceeds from disposal of asset


6,418



2,098



972Proceeds from sale of brand rights
    and other assets






843



Increase in other assets


(965
)


(313
)


263Net cash provided by (used in)
    investing activities


3,258



1,805



(192
)Cash flow from continuing
    financing activities:Net proceeds from (payments on)
    notes payable and warrants


12,500



(2,688
)


Net proceeds from (payments on)
    bank debt and short term notes


(3,714
)


(12,096
)


4,325Payments on capital lease
    obligations


(2,381
)






(39
)Proceeds from employee stock
    purchase plan


152



122



Proceeds from exercise of stock
    options


302



247



16Net cash provided by (used in)
    financing activities


6,859



(14,415
)


4,302Effect of exchange rate changes on
    cash from continuing operations


(1,005
)


(88
)


14Net decrease in cash and cash
    equivalents from continuing operations


(475
)






Net decrease in cash flow from
    discontinued operations


(241
)






Cash and cash equivalents at
    beginning of year


716







Cash and cash equivalents at end of
    year

$



$



$
Cash flow from discontinued
    operations:Cash flow provided by operating
    activities

$
1,816


$
54


$
34Cash flow used in investing
    activities


(230
)


(54
)


Cash flow provided by (used in)
    financing activities


37







(34
)Effect of exchange rate changes on
    cash


(1,864
)






Net decrease in cash flow from
    discontinued operations

$
(241
)

$



$
    37




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Accounting
    Policies  Organization
    and Description of Business
      Basis
    of Presentation
        Principles
    of Consolidation
    Cash
    and Cash Equivalents
    Fair
    Value of Financial Instruments
   38




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Derivative
    Financial Instruments
  Accounting for
    Derivative Instruments and Hedging Activities,
  Revenue
    Recognition
    
    Persuasive evidence of an arrangement exists;
    Ownership has transferred to the customer;
    The price to the customer is fixed or determinable; and
    Collectibility is reasonably assured.    Shipping
    and Handling Costs
    Accounts
    Receivable and Allowances
       39




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Inventories
      Property
    and Equipment
  98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use.
  Impairment
    of Long-Lived Assets
  Accounting for the Impairment of Long-Lived
    Assets and for Long-Lived Assets to Be Disposed Of
  Goodwill
  Business Combinations Goodwill and Other Intangible
    Assets.
    Advertising
    Income
    Taxes
  Accounting for Income
    Taxes.
 40




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Product
    Warranty Cost and Service Returns
      2005


2006Balance at the beginning of year

$
4,789


$
3,185Provision for warranties and
    returns


10,882



6,674Net settlements made during the
    year


(12,486
)


(7,660
)Balance at the end of the year

$
3,185


$
2,199   Income
    (Loss) per Common Share
  Earnings Per
    Share.
  Significant
    Customers
    Foreign
    Currency Translation
  Foreign Currency Translation. year-to-year
  Stock
    Based Compensation
   41




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for Stock Issued to Employees Accounting for
    Stock-Based Compensation
    Accounting for Stock-Based
    Compensation
  Year Ended December 31,2004


2005(In thousands except per share data)Net loss as reported

$
(38,855
)

$
(4,087
)Proforma SFAS No. 123R
    expense


(378
)


(451
)Proforma net loss

$
(39,233
)

$
(4,538
)Proforma loss per common shareBasic

$
(4.33
)

$
(0.49
)Diluted

$
(4.33
)

$
(0.49
)     Use of
    Estimates
    Reclassifications
    New
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes: an
    interpretation of FASB Statement No. 109. Accounting for
    Income Taxes.
 42




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Staff Accounting
    Bulletin No. 108
  Fair Value Measurements.
  2.
    Discontinued
    Operations  SimpleDevices, Inc.
      December 31, 2004(In thousands)Revenues

$
322Cost of sales


234Operating expenses


1,459Interest and other expense
    (income), net


39Minority interest


(345
)Net loss

$
(1,065
)  43




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  MB Quart.
    December 31,2004


2005(In thousands)Revenues

$
4,547


$
Cost of sales


2,840



Operating expenses


3,317



63Interest and other expense
    (income), net


4



Income tax benefit


(6
)


Net loss

$
(1,608
)

$
(63
)   Rockford Home Group.
       44




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2004


2005


2006(In thousands)Revenues

$
8,698


$
5,266


$
46Cost of sales


5,370



3,165



201Operating expenses


4,131



2,382



Interest and other expense
    (income), net


(7
)


1



Net loss

$
(796
)

$
(282
)

$
(155
)   Cash Flows from Discontinued Operations.
  3.
    Inventories    December 31,2005


2006(In thousands)Raw materials

$
6,126


$
4,801Work in progress


1,494



563Finished goods


10,998



14,248$
18,618


$
19,612   4.
    Property
    and Equipment    December 31,2005


2006(In thousands)Machinery and equipment

$
13,533


$
13,230Tooling equipment


5,068



3,314Leasehold improvements


2,823



2,838Furniture and fixtures


709



297Computer software


1,659



1,722Construction in process


113



80Assets under capital leases






18223,905



21,663Less accumulated depreciation and
    amortization


(20,801
)


(19,176
)$
3,104


$
2,487  45




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5.
    Notes Payable
    and Long-Term Debt    December 31,2005


2006(In thousands)Asset based credit facility

$
6,109


$
10,400Convertible senior subordinated
    secured notes


9,500



9,50015,609



19,900Less debt discount


(313
)


(222
)Less current portion


(6,109
)


(10,400
)$
9,187


$
9,278       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
   46




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Years Ending December 31,(In thousands)2007

$
2008


10,4002009


9,5002010


2011


$
19,900   6.
    Leases   47




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Capital


Operating Leases(In thousands)


(In thousands)2007

$
59


$
1,7532008


59



1,4382009


60



5482010






1002011






Thereafter






Total minimum lease payments


178


$
3,839Less amount representing interest
    and taxes


35Total present value of capital
    obligation


143Less current portion


43Long-term obligation under capital
    leases

$
100     7.
    Income
    Taxes    December 31,2005


2006(In thousands)Deferred tax assetsInventory basis

$
1,820


$
1,592Basis in receivables


1,294



749Book over tax depreciation


222



301Accrued warranty


733



528Net operating loss carryforward


11,233



15,827Federal and state credit
    carryforwards


2,035



2,402Accrued liabilities and other


198



514Gross deferred tax assets


17,535



21,913Valuation allowance


(17,535
)


(21,913
)Net deferred tax assets

$



$
   Accounting for Income Tax.
 48




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Year Ended December 31,2004


2005


2006(In thousands)Current:Federal expense (benefit)

$
(928
)

$



$
(437
)State expense (benefit)










Foreign expense










Total current expense (benefit)


(928
)






(437
)Deferred:Federal expense (benefit)


4,900







State expense (benefit)


625







Foreign expense(benefit)


591







Total deferred expense (benefit)


6,116







Income tax expense (benefit)

$
5,188


$



$
(437
)  49




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2004


2005


2006(In thousands)Federal statutory rate 
    continuing operations

$
(10,715
)

$
(1,022
)

$
(3,104
)Federal statutory rate 
    discontinued operations


(732
)


(368
)


(53
)State tax net of federal benefit


7







State tax operating loss
    carryforward


(570
)


(552
)


(408
)Nondeductible items


16



178



110Nondeductible goodwill


2,420







Tax benefit on disposal of
    domestic subsidiary stock










(1,008
)Federal and state tax credits






(1,100
)


(367
)Loss of state net operating losses










267Revision of contingency reserve










(437
)Increase in valuation allowance


13,409



3,177



4,378Write-off of affiliate deferred
    tax assets


596







Affiliate unbenefited losses


962







249Other, net


(205
)


(313
)


(64
)Income tax expense (benefit)

$
5,188


$



$
(437
)       8.
    Common
    Stock Grants and Options      Accounting for Stock Issued to Employees
 50




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting
    for Stock-Based Compensation.
  out-of-the-money, out-of-the-money.
        2004


2005


2006Expected life of the award


5 years



5 years



5 yearsDividend yield


0
%


0
%


0
%Risk-free interest rate


3.4
%


4.5
%


4.6
%Expected volatility


0.46



0.46



0.47  51




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Outstanding Options


WeightedWeighted


Average


AggregateAverage


Remaining


IntrinsicShares


Exercise Price


Contractual Term


ValueOutstanding at January 1, 2006


1,589,264


$
4.69Granted


530,000



2.65Exercised


(6,750
)


2.57Expired


(214,450
)


4.48Outstanding at December 31,
    2006


1,898,064



4.15



6.9 years


$
160,000Exercisable at December 31,
    2006


1,329,214


$
4.77



5.9 years


$
93,000       Options Outstanding


Options ExercisableNumber


Weighted





NumberOutstanding at


Average


Weighted


Outstanding at


WeightedDecember 31,


Remaining


Average


December 31,


AverageRange of Exercise Prices

2006


Contractual Life


Exercise Price


2006


Exercise Price$2.15 - $3.23


1,010,400



9.0


$
2.48



555,050


$
2.48$3.41 - $5.12


314,100



5.0


$
3.80



200,600


$
3.96$5.70 - $8.55


509,064



4.4


$
6.79



509,064


$
6.79$11.00


64,500



3.3


$
11.00



64,500


$
11.001,898,064











1,329,214  52




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Income
    (Loss) Per Share  Year Ended December 31,2004


2005


2006(In thousands, except per share data)Numerator:Loss from continuing operations

$
(35,316
)

$
(2,723
)

$
(8,692
)Loss from discontinued operations


(3,539
)


(1,364
)


(155
)Net loss

$
(38,855
)

$
(4,087
)

$
(8,847
)Denominator:Denominator for basic loss per
    share


9,066



9,258



9,388Effect of dilutive securities:Employee stock options










Warrants










Dilutive potential common shares










Denominator for diluted loss per
    share


9,066



9,258



9,388Loss per common share:Loss from continuing operationsBasic

$
(3.90
)

$
(0.29
)

$
(0.92
)Diluted

$
(3.90
)

$
(0.29
)

$
(0.92
)Loss from discontinued operationsBasic

$
(0.39
)

$
(0.15
)

$
(0.02
)Diluted

$
(0.39
)

$
(0.15
)

$
(0.02
)Net lossBasic

$
(4.29
)

$
(0.44
)

$
(0.94
)Diluted

$
(4.29
)

$
(0.44
)

$
(0.94
)     10.
    Contingencies   53




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   11.
    Benefit
    Plan    12.
    Stock
    Purchase Plan    13.
    Segment
    Information    Year Ended December 31Region(1)

2004


2005


2006


% 2006(In thousands)United States

$
133,682


$
112,657


$
86,017



83.7
%Other Americas (includes Canada)


9,295



9,438



8,007



7.8
%Europe


12,544



9,042



5,316



5.2
%Asia


5,336



4,545



3,436



3.3
%Total sales to external customers

$
160,857


$
135,682


$
102,776



100.0
%     (1)
    
    Revenues are attributed to geographic regions based on the
    location of customers.    14.
    Disposal
    of Assets    MB Quart.
  Q-Logic.
 54




---



##### Table of Contents



ROCKFORD
    CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    15.
    Restructuring   55




---



##### Table of Contents



Item 9.
    Changes
    In and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Form 10-K. Form 10-K
      Changes
    in Internal Controls
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers and Corporate Governance  Regulation S-K
    Item 11.
    Executive
    Compensation   56




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Consolidated
    Financial Statements
    Financial
    Statement Schedule
 SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS



ROCKFORD
    CORPORATION  Column A

Column B


Column C


Column D


Column EBalance at


Charged to


Charged toBeginning of


Costs and


Other





Balance atDescription

Period


Expenses


Accounts(2)


Deductions(1)


End of Period(In thousands)December 31, 2006 Receivable
    allowances

$
2,307


$
856


$
1774


$
3670


$
1,267December 31, 2005 Receivable
    allowances

$
3,163


$
388


$
3,517


$
4,761


$
2,307December 31, 2004 Receivable
    allowances

$
2,901


$
1,841


$
5,100


$
6,679


$
3,163     (1)
    
    Deductions taken by customers for prompt payment and freight
    discounts. Includes accounts written off net of recoveries.(2)
    
    Amounts netted against sales.   57




---



##### Table of Contents



Exhibits
  ExhibitNumber

Description of Document3
.1

Articles of Incorporation+3
.2

Restated Bylaws as amended through
    July 27, 2000++3
.3

Amendment to Articles of
    Incorporation filed on January 12, 1988+3
.4

Amendment to Articles of
    Incorporation filed on May 12, 1999+3
.5

Amendment to Articles of
    Incorporation filed on May 17, 1999+3
.7

Amendment to Articles of
    Incorporation filed on July 1, 1999+4
.1

Conformed Copy of Indenture dated
    as of June 10, 2004 between Rockford Corporation and BNY
    Western Trust Company###4
.2

Form of 4.5% Convertible
    Senior Subordinated Secured Note Due 2009###4
.3

Form of Warrant to Purchase Common
    Stock###4
.4

Conformed Copy of Registration
    Rights Agreement dated as of June 10, 2004 by and among
    Rockford Corporation, Piper Jaffray & Co. and the
    Buyers as defined therein###4
.5

Conformed Copy of Warrant Agent
    Agreement dated as of June 10, 2004 between Rockford
    Corporation and BNY Western Trust Company###4
.6

Conformed Copy of Security
    Agreement dated as of June 10, 2004 among Rockford
    Corporation, Audio Innovations, Inc. and BNY Western Trust
    Company###4
.7

Conformed Copy of Intercreditor
    Agreement dated as of June 10, 2004 by and among Congress
    Financial Corporation (Western), BNY Western Trust Company,
    Rockford Corporation and Audio Innovations, Inc.###4
.8

Conformed Copy of Global Amendment
    to Notes, Warrants, Indenture, Security Agreement, Warrant Agent
    Agreement and Registration Rights Agreement and Waiver of Event
    of Default dated as of November 12, 2004 by and among
    Rockford Corporation, Audio Innovations, Inc., BNY Western Trust
    Company and the persons listed on the Schedule of Holders
    attached thereto as Exhibit A####4
.9

Conformed Copy of Amendment to
    Warrants, Warrant Agent Agreement and Registration Rights
    Agreement dated as of November 12, 2004, by and among
    Rockford Corporation, BNY Western Trust Company and Piper
    Jaffray & Co####10
.1

1994 Stock Option Plan*+10
.2

1997 Stock Option Plan*+10
.3

1999 Employee Stock Purchase Plan
    as amended and restated*+10
.4

Rockford Corporation 2005 Stock
    Option Plan****10
.8

Form of Dealership Agreements+10
.14

Employee 401(k) Deferred
    Compensation Plan and amendments thereto*+10
.35

Form of Indemnification Agreement*+10
.35.1

Schedule for Indemnification
    Agreement*+10
.48

2002 Stock Option Plan*+++10
.54

Lease Agreement between Robert
    Grooters Development Company and Rockford Corporation#10
.55

Warehouse Storage &
    Logistics Agreement between Titan Logistics, Inc. and Audio
    Innovations, Inc.#10
.56

Multi-tenant Industrial Net Lease
    between Calwest Industrial Holdings, LLC and Rockford
    Corporation, dated July 16, 2003#10
.57

Supplier Agreement between
    Wal-Mart Stores, Inc. and Rockford Corporation, effective
    January 23, 2003#10
.58

Direct Imports Supplier Agreement
    between Wal-Mart Stores, Inc. and Rockford Corporation, dated
    March 6, 2003#10
.59

Commercial Lease Agreements
    between David and Yvonne Cunningham and Rockford Corporation, as
    amended#10
.60

Commercial Lease Agreement between
    William Basore and Rockford Corporation, as amended# 58




---



##### Table of Contents



ExhibitNumber

Description of Document10
.62

Loan and Security Agreement among
    Rockford Corporation, Audio Innovations, Inc., Congress
    Financial Corporation (Western), and various Financial
    Institutions, dated March 29, 2004##10
.62.1

First Amendment to Loan and
    Security Agreement and Conditional Default Waiver among Congress
    Financial Corporation (Western), as a lender and as
    administrative and collateral agent for the lenders party to the
    Loan Agreement, Rockford Corporation, and Audio Innovations,
    Inc., dated as of June 10, 2004***10
.62.2

Second Amendment to Loan and
    Security Agreement among Congress Financial Corporation
    (Western) as a lender and as administrative and collateral agent
    for the lenders party to the Loan Agreement, Rockford
    Corporation and Audio Innovations, Inc., dated as of
    December 30, 2004***10
.63

Industrial Lease Agreement between
    Jerome A.
    and/or Cathy
    E. Reynolds and Rockford Corporation, dated as of May 1,
    2003***10
.64

Stock Purchase Agreement among
    SimpleDevices, Inc., the stockholders of SimpleDevices, Inc. and
    Universal Electronics Inc., dated as of October 1, 2004***10
.65

Agreement among Tobias Wahl, in
    his capacity as insolvency trustee of MB Quart GmbH, Rockford
    Corporation and Rockford Europe Vertriebs GmbH, dated as of
    March 11, 2005***10
.66

Securities Purchase Agreement
    dated as of June 10, 2004 between Rockford Corporation and
    the Buyers as defined therein#####10
.67

Third Amendment to Loan and
    Security Agreement, dated August 31, 2005, among Rockford,
    Rockfords wholly owned subsidiary Audio Innovations, Inc.
    (AII), and Wachovia Capital Finance Corporation
    (Western).**10
.68

Asset Purchase Agreement between
    Rockford Corporation and NHT, Inc., effective as of
    October 18, 2005 and relating to the sale of the assets of
    Rockfords NHT business.**10
.69

Assignment between Rockford and
    Maxxsonics Europe GmbH relating to the assignment of the MB
    Quart brand rights in North America to Maxxsonics.**10
.70

Fourth amendment to Loan and
    Security Agreement and Consent, dated March 21, 2006, among
    Rockford, Rockfords wholly owned subsidiary Audio
    Innovations, Inc. (AII), and Wachovia Capital
    Finance Corporation (Western). ****10
.71

Asset Purchase Agreement between
    Rockford Corporation, Audio Innovations, Inc., and Advanced
    Integration, LLC, dated as of March 31, 2006.****10
.72

Loan and Security Agreement is
    between Advanced Integration, LLC as borrower and Rockford
    Corporation as lender, dated March 31, 2006.****10
.73

Subordination and Intecreditor
    Agreement among Rockford Corporation, Advanced Integration, LLC,
    and Stillwater National Bank And Trust Company, dated as of
    March 31, 2006.****10
.74

Fifth amendment to Loan and
    Security Agreement and Consent, dated August 31, 2006,
    among Rockford, Rockfords wholly owned subsidiary Audio
    Innovations, Inc. (AII), and Wachovia Capital
    Finance Corporation (Western).****10
.75

Agreement between Rockford and
    David Fiori dated February 22, 200710
.76

Retirement and Salary Continuation
    Agreement between Rockford and W. Gary Suttle10
.77

Fifth Lease Amendment Between
    Centerpoint Properties Trust and Rockford Corporation, dated
    November 9, 200610
.78

Sixth amendment to Loan and
    Security Agreement and Waiver, dated March 7, 2007, among
    Rockford, Rockfords wholly owned subsidiary Audio
    Innovations, Inc. (AII), and Wachovia Capital
    Finance Corporation (Western).21


List of Subsidiaries of Rockford
    Corporation23
.1

Consent of Independent Registered
    Public Accounting Firm31
.1

Certification pursuant to Exchange
    Act
    Rules 13a-14(a)
    and
    15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for W. Gary Suttle 59




---



##### Table of Contents



ExhibitNumber

Description of Document31
.2

Certification pursuant to Exchange
    Act
    Rules 13a-14(a)
    and
    15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Richard G. Vasek32


Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Management contract or compensatory plan or arrangement+
    
    Previously filed with registration statement effective
    April 19, 2000
    and/or
    amendments.++
    
    Previously filed on August 11, 2000 with Rockfords
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000.+++
    
    Previously filed on March 29, 2002 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 30, 2001.#
    
    Previously filed on March 30, 2004 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 30, 2003.##
    
    Previously filed on May 17, 2004 with Rockfords
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2004.###
    
    Previously filed on June 15, 2004 with Rockfords
    Current Report on
    Form 8-K.####
    
    Previously filed on November 15, 2004 with Rockfords
    Current Report on
    Form 8-K.#####
    
    Previously filed on June 15, 2004 as Exhibit 10.1 with
    Rockfords Current Report on
    Form 8-K.**
    
    Previously filed on November 14, 2005, with Rockfords
    quarterly report on Form 10Q for the quarter ended
    September 30, 2005.***
    
    Previously filed on April 15, 2005 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 31, 2004.****
    
    Previously filed on November 14, 2006, with Rockfords
    quarterly report on Form 10Q for the quarter ended
    September 30, 2006. 60




---



##### Table of Contents



SIGNATURES      By:
    /s/  WILLIAM
    R. JACKSON       Name

Title

Date/s/  WILLIAM
    R. JACKSONWilliam
    R. Jackson

President (Principal Executive
    Officer)

March 26, 2007/s/  RICHARD
    G. VASEKRichard
    G. Vasek

Vice President of Finance and
    Chief Financial Officer, Secretary (Principal Financial Officer)

March 26, 2007/s/  MARK
    E. BARRIEREMark
    E. Barriere

Corporate Controller (Principal
    Accounting Officer)

March 26, 2007/s/  JERRY
    E. GOLDRESSJerry
    E. Goldress

Director

March 26, 2007/s/  TIMOTHY
    C. BARTOLTimothy
    C. Bartol

Director

March 26, 2007/s/  NICHOLAS
    G. BARTOLNicholas
    G. Bartol

Director

March 26, 2007/s/  RALPH
    B. GODFREYRalph
    B. Godfrey

Director

March 26, 2007/s/  JOHN
    P. LLOYDJohn
    P. Lloyd

Director

March 26, 2007/s/  W.
    GARY SUTTLEW.
    Gary Suttle

Director

March 26, 2007  61




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description of Document3
.1

Articles of Incorporation+3
.2

Restated Bylaws as amended through
    July 27, 2000++3
.3

Amendment to Articles of
    Incorporation filed on January 12, 1988+3
.4

Amendment to Articles of
    Incorporation filed on May 12, 1999+3
.5

Amendment to Articles of
    Incorporation filed on May 17, 1999+3
.7

Amendment to Articles of
    Incorporation filed on July 1, 1999+4
.1

Conformed Copy of Indenture dated
    as of June 10, 2004 between Rockford Corporation and BNY
    Western Trust Company###4
.2

Form of 4.5% Convertible
    Senior Subordinated Secured Note Due 2009###4
.3

Form of Warrant to Purchase Common
    Stock###4
.4

Conformed Copy of Registration
    Rights Agreement dated as of June 10, 2004 by and among
    Rockford Corporation, Piper Jaffray & Co. and the
    Buyers as defined therein###4
.5

Conformed Copy of Warrant Agent
    Agreement dated as of June 10, 2004 between Rockford
    Corporation and BNY Western Trust Company###4
.6

Conformed Copy of Security
    Agreement dated as of June 10, 2004 among Rockford
    Corporation, Audio Innovations, Inc. and BNY Western Trust
    Company###4
.7

Conformed Copy of Intercreditor
    Agreement dated as of June 10, 2004 by and among Congress
    Financial Corporation (Western), BNY Western Trust Company,
    Rockford Corporation and Audio Innovations, Inc.###4
.8

Conformed Copy of Global Amendment
    to Notes, Warrants, Indenture, Security Agreement, Warrant Agent
    Agreement and Registration Rights Agreement and Waiver of Event
    of Default dated as of November 12, 2004 by and among
    Rockford Corporation, Audio Innovations, Inc., BNY Western Trust
    Company and the persons listed on the Schedule of Holders
    attached thereto as Exhibit A####4
.9

Conformed Copy of Amendment to
    Warrants, Warrant Agent Agreement and Registration Rights
    Agreement dated as of November 12, 2004, by and among
    Rockford Corporation, BNY Western Trust Company and Piper
    Jaffray & Co####10
.1

1994 Stock Option Plan*+10
.2

1997 Stock Option Plan*+10
.3

1999 Employee Stock Purchase Plan
    as amended and restated*+10
.4

Rockford Corporation 2005 Stock
    Option Plan****10
.8

Form of Dealership Agreements+10
.14

Employee 401(k) Deferred
    Compensation Plan and amendments thereto*+10
.35

Form of Indemnification Agreement*+10
.35.1

Schedule for Indemnification
    Agreement*+10
.48

2002 Stock Option Plan*+++10
.54

Lease Agreement between Robert
    Grooters Development Company and Rockford Corporation#10
.55

Warehouse Storage &
    Logistics Agreement between Titan Logistics, Inc. and Audio
    Innovations, Inc.#10
.56

Multi-tenant Industrial Net Lease
    between Calwest Industrial Holdings, LLC and Rockford
    Corporation, dated July 16, 2003#10
.57

Supplier Agreement between
    Wal-Mart Stores, Inc. and Rockford Corporation, effective
    January 23, 2003#10
.58

Direct Imports Supplier Agreement
    between Wal-Mart Stores, Inc. and Rockford Corporation, dated
    March 6, 2003#10
.59

Commercial Lease Agreements
    between David and Yvonne Cunningham and Rockford Corporation, as
    amended#10
.60

Commercial Lease Agreement between
    William Basore and Rockford Corporation, as amended#10
.62

Loan and Security Agreement among
    Rockford Corporation, Audio Innovations, Inc., Congress
    Financial Corporation (Western), and various Financial
    Institutions, dated March 29, 2004##




---



##### Table of Contents



ExhibitNumber

Description of Document10
.62.1

First Amendment to Loan and
    Security Agreement and Conditional Default Waiver among Congress
    Financial Corporation (Western), as a lender and as
    administrative and collateral agent for the lenders party to the
    Loan Agreement, Rockford Corporation, and Audio Innovations,
    Inc., dated as of June 10, 2004***10
.62.2

Second Amendment to Loan and
    Security Agreement among Congress Financial Corporation
    (Western) as a lender and as administrative and collateral agent
    for the lenders party to the Loan Agreement, Rockford
    Corporation and Audio Innovations, Inc., dated as of
    December 30, 2004***10
.63

Industrial Lease Agreement between
    Jerome A.
    and/or Cathy
    E. Reynolds and Rockford Corporation, dated as of May 1,
    2003***10
.64

Stock Purchase Agreement among
    SimpleDevices, Inc., the stockholders of SimpleDevices, Inc. and
    Universal Electronics Inc., dated as of October 1, 2004***10
.65

Agreement among Tobias Wahl, in
    his capacity as insolvency trustee of MB Quart GmbH, Rockford
    Corporation and Rockford Europe Vertriebs GmbH, dated as of
    March 11, 2005***10
.66

Securities Purchase Agreement
    dated as of June 10, 2004 between Rockford Corporation and
    the Buyers as defined therein#####10
.67

Third Amendment to Loan and
    Security Agreement, dated August 31, 2005, among Rockford,
    Rockfords wholly owned subsidiary Audio Innovations, Inc.
    (AII), and Wachovia Capital Finance Corporation
    (Western).**10
.68

Asset Purchase Agreement between
    Rockford Corporation and NHT, Inc., effective as of
    October 18, 2005 and relating to the sale of the assets of
    Rockfords NHT business.**10
.69

Assignment between Rockford and
    Maxxsonics Europe GmbH relating to the assignment of the MB
    Quart brand rights in North America to Maxxsonics.**10
.70

Fourth amendment to Loan and
    Security Agreement and Consent, dated March 21, 2006, among
    Rockford, Rockfords wholly owned subsidiary Audio
    Innovations, Inc. (AII), and Wachovia Capital
    Finance Corporation (Western). ****10
.71

Asset Purchase Agreement between
    Rockford Corporation, Audio Innovations, Inc., and Advanced
    Integration, LLC, dated as of March 31, 2006. ****10
.72

Loan and Security Agreement is
    between Advanced Integration, LLC as borrower and Rockford
    Corporation as lender, dated March 31, 2006. ****10
.73

Subordination and Intecreditor
    Agreement among Rockford Corporation, Advanced Integration, LLC,
    and Stillwater National Bank And Trust Company, dated as of
    March 31, 2006. ****10
.74

Fifth amendment to Loan and
    Security Agreement and Consent, dated August 31, 2006,
    among Rockford, Rockfords wholly owned subsidiary Audio
    Innovations, Inc. (AII), and Wachovia Capital
    Finance Corporation (Western).****10
.75

Agreement between Rockford and
    David Fiori dated February 22, 2007.10
.76

Retirement and Salary Continuation
    Agreement between Rockford and W. Gary Suttle.10
.77

Fifth Lease Amendment Between
    Centerpoint Properties Trust and Rockford Corporation, dated
    November 9, 2006.10
.78

Sixth amendment to Loan and
    Security Agreement and Waiver, dated March 7, 2007, among
    Rockford, Rockfords wholly owned subsidiary Audio
    Innovations, Inc. (AII), and Wachovia Capital
    Finance Corporation (Western).21


List of Subsidiaries of Rockford
    Corporation23
.1

Consent of Independent Registered
    Public Accounting Firm31
.1

Certification pursuant to Exchange
    Act
    Rules 13a-14(a)
    and
    15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for W. Gary Suttle31
.2

Certification pursuant to Exchange
    Act
    Rules 13a-14(a)
    and
    15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002 for Richard G. Vasek32


Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002




---



##### Table of Contents



*
    
    Management contract or compensatory plan or arrangement+
    
    Previously filed with registration statement effective
    April 19, 2000
    and/or
    amendments.++
    
    Previously filed on August 11, 2000 with Rockfords
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2000.+++
    
    Previously filed on March 29, 2002 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 30, 2001#
    
    Previously filed on March 30, 2004 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 30, 2003.##
    
    Previously filed on May 17, 2004 with Rockfords
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2004###
    
    Previously filed on June 15, 2004 with Rockfords
    Current Report on
    Form 8-K.####
    
    Previously filed on November 15, 2004 with Rockfords
    Current Report on
    Form 8-K.#####
    
    Previously filed on June 15, 2004 as Exhibit 10.1 with
    Rockfords Current Report on
    Form 8-K.**
    
    Previously filed on November 14, 2005 with Rockfords
    quarterly report on Form 10Q for the quarter ended
    September 30, 2005.***
    
    Previously filed on April 15, 2005 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 31, 2004.***
    
    Previously filed on April 15, 2005 with Rockfords
    Annual Report on
    Form 10-K
    for the year ended December 31, 2004.****
    
    Previously filed on November 14, 2006, with Rockfords
    quarterly report on Form 10Q for the quarter ended
    September 30, 2006.