##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 Commission File Number 000-30138 ROCKFORD CORPORATION (Exact Name of Registrant as Specified in its Charter)
 ARIZONA
    
    86-0394353(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)600 South Rockford Drive
    
    85281Tempe, Arizona
    
    (Zip Code)(Address of Principal ExecutiveOffices)
 (480) 967-3565
(Registrants Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or15(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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes      o             No      þ Indicate the number of shares of each of the issuers classes of common stock,
as of the latest practical date: As of June 30, 2004, there were 9,025,563 shares of Common Stock, $.01 par
value per share, outstanding. This is the only class of common stock of the
Company registered underSection 12(g)of the Securities Act of 1933.




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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PagePart I:
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets 
June 30, 2004 and December 31, 2003
    
    
    2Condensed Consolidated Income Statements 
Three and Six Months Ended June 30, 2004 and 2003
    
    
    3Condensed Consolidated Statements of Cash Flows 
Six Months Ended June 30, 2004 and 2003
    
    
    4Notes to Condensed Consolidated Financial Statements  June 30, 2004
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    7Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    17Part II:
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    19Signatures
    
    
    
    
    20Certifications
    
    
    
    
    22Exhibit 31.1Exhibit 31.2EX-32




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Forward-Looking Statements We make forward-looking statements in this report including, without
limitation, statements concerning the future of our industry, product
development, business strategy (including the possibility of future
acquisitions), 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. You may identify these statements by our 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 our forward-looking statements,
which speak only as at the date on which they are made. Our actual results may
differ materially from those described in our forward-looking statements. We
disclaim any obligation or undertaking to update our 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, in our
Annual Report on Form 10-K for the year 2003, filed with the SEC on March 30,
2004, and in Exhibit 99.9 to our Annual Report, Risk Factors That May Affect
Rockfords Operating Results, Business Prospects and Stock Price. The risk
factors noted throughout this report and our Annual Report, particularly in the
discussion in Exhibit 99.9 to our Annual Report, 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.




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PART I. FINANCIAL INFORMATION 
 Item 1.     Financial Statements ROCKFORD CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS June 30,
    
    December 31,2004
    
    2003(Unaudited)
    
    (Note)(In thousands except share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    716Accounts receivable, less allowances of $7,644 and $6,067 at
June 30, 2004 and December 31, 2003, respectively
    
    
    42,875
    
    
    
    31,820Inventories, net
    
    
    50,109
    
    
    
    37,925Deferred income taxes
    
    
    6,704
    
    
    
    5,965Income taxes receivable
    
    
    4,757
    
    
    
    3,064Prepaid expenses and other
    
    
    5,565
    
    
    
    3,985Total current assets
    
    
    110,010
    
    
    
    83,475Property and equipment, net
    
    
    16,437
    
    
    
    16,296Deferred income taxes
    
    
    141
    
    
    
    151Goodwill, net
    
    
    7,060
    
    
    
    7,118Other assets
    
    
    3,577
    
    
    
    1,987Total assets
    
    $
    137,225
    
    
    $
    109,027Liabilities and shareholders equityCurrent liabilities:Cash Overdraft
    
    $
    440
    
    
    $
    Accounts payable
    
    
    28,425
    
    
    
    9,419Accrued salaries and incentives
    
    
    2,404
    
    
    
    2,044Accrued warranty
    
    
    5,828
    
    
    
    4,789Other accrued expenses
    
    
    6,765
    
    
    
    4,740Current portion of notes payable, long-term debt and capital
lease obligations
    
    
    25,668
    
    
    
    24,345Total current liabilities
    
    
    69,530
    
    
    
    45,337Notes payable, less discount of $464
    
    
    12,036
    
    
    
    Minority interest
    
    
    234
    
    
    
    483Shareholders equity:Common
stock, $.01 par value  Authorized shares  40,000,000Issued
shares  9,025,563 shares at June 30, 2004, and
9,010,663 at December 31, 2003.
    
    
    90
    
    
    
    90Additional paid-in capital
    
    
    36,753
    
    
    
    36,228Retained earnings
    
    
    15,667
    
    
    
    23,534Accumulated other comprehensive income
    
    
    2,915
    
    
    
    3,355Total shareholders equity
    
    
    55,425
    
    
    
    63,207Total liabilities and shareholders equity
    
    $
    137,225
    
    
    $
    109,027
 Note:    The balance sheet at December 31, 2003, has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. See notes to condensed
consolidated financial statements. 2




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ROCKFORD CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(In thousands, except per share data)Revenues
    
    $
    54,686
    
    
    $
    56,500
    
    
    $
    94,856
    
    
    $
    96,288Cost of goods sold
    
    
    39,744
    
    
    
    36,241
    
    
    
    71,805
    
    
    
    63,025Gross profit
    
    
    14,942
    
    
    
    20,259
    
    
    
    23,051
    
    
    
    33,263Operating expenses:Sales and marketing
    
    
    9,319
    
    
    
    9,612
    
    
    
    16,833
    
    
    
    17,175General and administrative
    
    
    5,076
    
    
    
    5,768
    
    
    
    10,555
    
    
    
    11,186Research and development
    
    
    2,540
    
    
    
    2,113
    
    
    
    5,458
    
    
    
    4,347Total operating expenses
    
    
    16,935
    
    
    
    17,493
    
    
    
    32,846
    
    
    
    32,708Operating (loss) income
    
    
    (1,993
    )
    
    
    2,766
    
    
    
    (9,795
    )
    
    
    555Interest and other expense/(income), net
    
    
    1,085
    
    
    
    (285
    )
    
    
    1,690
    
    
    
    (333
    )(Loss) Income before income tax
    
    
    (3,078
    )
    
    
    3,051
    
    
    
    (11,485
    )
    
    
    888Income tax (benefit)/expense
    
    
    (520
    )
    
    
    1,302
    
    
    
    (3,363
    )
    
    
    255(Loss) Income before minority interest
    
    
    (2,558
    )
    
    
    1,749
    
    
    
    (8,122
    )
    
    
    633Minority interest
    
    
    (96
    )
    
    
    (85
    )
    
    
    (257
    )
    
    
    (254
    )Net (loss) income
    
    $
    (2,462
    )
    
    $
    1,834
    
    
    $
    (7,865
    )
    
    $
    887Net (loss) income per common share:Basic
    
    $
    (0.27
    )
    
    $
    0.21
    
    
    $
    (0.87
    )
    
    $
    0.10Diluted
    
    $
    (0.27
    )
    
    $
    0.20
    
    
    $
    (0.87
    )
    
    $
    0.10Weighted average shares:Basic
    
    
    9,026
    
    
    
    8,829
    
    
    
    9,020
    
    
    
    8,799Diluted
    
    
    9,026
    
    
    
    9,188
    
    
    
    9,020
    
    
    
    9,155
 See notes to condensed consolidated financial statements. 3




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ROCKFORD CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six months ended June 30,2004
    
    2003(In thousands)Operating activitiesNet (loss) income
    
    $
    (7,865
    )
    
    $
    887Adjustments to reconcile net (loss) income to net
cash used in operating activities:Depreciation and amortization
    
    
    2,639
    
    
    
    2,250Loss on sale of fixed assets
    
    
    
    
    
    
    5Provision for doubtful accounts
    
    
    477
    
    
    
    404Provision for inventory allowances
    
    
    499
    
    
    
    476Minority interest
    
    
    (257
    )
    
    
    (254
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (11,532
    )
    
    
    (16,596
    )Inventories
    
    
    (12,683
    )
    
    
    (7,634
    )Income taxes receivable
    
    
    (1,693
    )
    
    
    1,497Prepaid expenses and other assets
    
    
    (2,319
    )
    
    
    (518
    )Bank overdraft
    
    
    440
    
    
    
    Accounts payable
    
    
    19,006
    
    
    
    7,694Accrued salaries and incentives
    
    
    360
    
    
    
    135Accrued warranty
    
    
    1,039
    
    
    
    357Other accrued expenses
    
    
    2,025
    
    
    
    2,186Net cash used in operating activities
    
    
    (9,864
    )
    
    
    (9,111
    )Investing activitiesPurchases of property and equipment
    
    
    (2,776
    )
    
    
    (3,760
    )Proceeds from disposal of property and equipment
    
    
    (4
    )
    
    
    18Acquisitions of business, net of cash acquired
    
    
    
    
    
    
    357Increase in other assets
    
    
    (1,516
    )
    
    
    (98
    )Net cash used in investing activities
    
    
    (4,296
    )
    
    
    (3,483
    )Financing activitiesNet proceeds from notes payable, long-term debt
    
    
    17,823
    
    
    
    12,099Repayment of short-term debt
    
    
    (4,000
    )Payments on capital lease obligations
    
    
    
    
    
    
    (514
    )Proceeds from the exercise of stock options and
warrants
    
    
    61
    
    
    
    489Net cash provided by financing activities
    
    
    13,884
    
    
    
    12,074Effect of exchange rate changes on cash
    
    
    (440
    )
    
    
    971Net (decrease) increase in cash and cash equivalents
    
    
    (716
    )
    
    
    451Cash and cash equivalents at beginning of period
    
    
    716
    
    
    
    304Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    755
 See notes to condensed consolidated financial statements. 4




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Rockford Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2004  1.
    
    Basis of Presentation Unaudited Interim Financial Information We have prepared our unaudited condensed consolidated financial statements in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, we have made all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation. Operating results for the three-month and six-month periods ended June 30,
2004, are not necessarily indicative of the results you may expect for the year
ending December 31, 2004. We have made certain reclassifications
to the June 30, 2003 interim financial statements and the December
31, 2003 consolidated balance sheet in order to conform to
the June 30, 2004 presentation. For further information, refer to the consolidated financial statements and
footnotes included as part of our Form 10-K for the year ended December 31,
2003, filed with the Securities and Exchange Commission (SEC) on March 30,
2004. Stock-based Compensation Rockford accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and has adopted the disclosure-only alternative
of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-based Compensation, and SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Rockford grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at date of grant. Fair value of the underlying shares is
determined by the market price at the date of the grant. Stock option grants to
non-employees are charged to expense based upon the fair value of the options
granted. The following table
represents the effect on net (loss) income and (loss) earnings per share
if Rockford had applied the fair value based method and recognition provisions
of SFAS No. 123, Accounting for Stock-Based Compensation,to Rockfords
stock-based employee compensation: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(In thousands, except per share data)Net (loss) income as reported
    
    $
    (2,462
    )
    
    $
    1,834
    
    
    $
    (7,865
    )
    
    $
    887Proforma SFAS No. 123 expense
    
    
    (77
    )
    
    
    (113
    )
    
    
    (184
    )
    
    
    (188
    )Proforma net (loss) income
    
    $
    (2,539
    )
    
    $
    1,721
    
    
    $
    (8,049
    )
    
    $
    699Proforma net (loss) income per common shareBasic
    
    $
    (0.28
    )
    
    $
    0.19
    
    
    $
    (0.89
    )
    
    $
    0.08Diluted
    
    $
    (0.28
    )
    
    $
    0.19
    
    
    $
    (0.89
    )
    
    $
    0.08
 5




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For purposes of proforma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period.  2.
    
    Inventories Inventories consist of the following: June 30,
    
    December 31,2004
    
    2003(In thousands)Raw materials
    
    $
    16,237
    
    
    $
    9,698Work in progress
    
    
    2,436
    
    
    
    1,548Finished goods
    
    
    36,150
    
    
    
    30,89854,823
    
    
    
    42,144Less allowances
    
    
    (4,714
    )
    
    
    (4,219
    )$
    50,109
    
    
    $
    37,925
  3.
    
    Net (Loss) Income Per Share The following table sets forth the computation of basic and diluted net (loss)
income per share: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(In thousands, except per share data)Numerator:Numerator for basic and diluted
net (loss) income per
share
    
    $
    (2,462
    )
    
    $
    1,834
    
    
    $
    (7,865
    )
    
    $
    887Denominator:Denominator for basic net income
per share, weighted
average shares
    
    
    9,026
    
    
    
    8,829
    
    
    
    9,020
    
    
    
    8,799Effect of dilutive securities:Employee stock options
    
    
    0
    
    
    
    354
    
    
    
    0
    
    
    
    352Warrants
    
    
    0
    
    
    
    5
    
    
    
    0
    
    
    
    4Dilutive potential common shares
    
    
    0
    
    
    
    359
    
    
    
    0
    
    
    
    356Denominator
for diluted net (loss) income
per share, adjusted
weighted average shares
    
    
    9,026
    
    
    
    9,188
    
    
    
    9,020
    
    
    
    9,155Basic net
(loss) income per share
    
    $
    (0.27
    )
    
    $
    0.21
    
    
    $
    (0.87
    )
    
    $
    0.10Diluted net (loss) income per share
    
    $
    (0.27
    )
    
    $
    0.20
    
    
    $
    (0.87
    )
    
    $
    0.10
 At June 30, 2004, options to purchase approximately 425,051 shares and warrants
to purchase 649,810 shares of Rockford stock were excluded from the calculation
of the diluted net loss per share because they were anti-dilutive. At June 30,
2003, options to purchase approximately 541,000 shares of Rockford stock were
excluded from the calculation of the diluted net income per share because they
were anti-dilutive. 6




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4.
    
    Convertible Debt and Warrants On June 11, 2004, Rockford completed the private placement of $12.5 million of
Rockfords 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
private placement closed, and Rockford issued the notes and warrants, as of
June 11, 2004. The noteholders may convert the notes into Rockfords common stock at any time
prior to the scheduled maturity date of June 10, 2009. The conversion price is
$5.29 per share, which represents a 15% premium over the closing price of
Rockfords common stock on June 9, 2004. If fully converted, the Notes will
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 may also
force the exercise of the warrants under certain circumstances prior to their
expiration date. Rockford used the net proceeds from the sale to pay off its $4.0 million junior
term loan with Hilco Capital LP (Hilco) and to pay down its revolving asset
based credit facility with Congress Financial Corporation (Western), as agent
(Congress). This resolves the previously reported default under the Hilco
facility. At the same time it completed the notes offering, Rockford received a waiver of
its previously announced violation of covenants on the revolving credit
facility with Congress. In addition, Rockford and Congress modified certain
terms of the Congress facility. This amendment reduced the current
availability of the line to $35.0 million until Congress is able to syndicate
the balance of the facility and it added a rolling EBITDA covenant that is
effective starting in August of 2004. 
 Item 2.       Managements Discussion and Analysis of Financial Condition and Results
of Operations You should read this discussion and analysis of financial condition and results
of operations in conjunction with our unaudited condensed consolidated
financial statements and the related disclosures included elsewhere in this
report, and Managements Discussion and Analysis of Financial Condition and
Results of Operations included as part of our Form 10-K for the year 2003,
filed with the SEC on March 30, 2004. Overview Our second quarter results showed a significant improvement over the first
quarter with income before taxes and minority interest improving by $5.3
million, resulting in a net loss of $3.1 million for the second quarter. Our
gross margin increased by 7.1% from 20.2% to 27.3%. Our second quarter net
loss included a charge of approximately $0.6 million related to the exit from
the Hilco facility, described below. This expense contributed ($0.07) per
share to our second quarter loss per share of ($0.27). Our loss was an
improvement over the ($0.60) loss per share in the first quarter, but fell well
short of the earnings per share of $0.21 achieved in the second quarter of
2003. Our goal is to return to profitability and positive operating cash flow though
increased sales and margins, reduced expenses and improved working capital
management. We are beginning to see the results of our efforts, but recognize
that we have significant challenges ahead of us. Sales for the three months ended June 30, 2004 were $1.8 million less than
sales for the three months ended June 30, 2003. Sales of our core Rockford
Fosgate line in the second quarter of 2004 exceeded 2003 second quarter levels
due to the strength of our relaunched product line. We believe sales would
have been higher had we not continued to experience some of the product
availability issues discussed in our first quarter 10-Q. Sales of our Lighting
Audio brand for the second quarter of 2004 were well below second quarter 2003
levels, largely because 2003 included the load in sales of our 2 Fast 2 Furious
promotional products. In order to preserve our domestic market presence and 7




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our relationships with our major customers, during the second quarter we
diverted product into the US market that we would
ordinarily allocate to overseas customers. This has reduced our international
sales; however, we increased product shipments into these markets in June and
expect to reduce our international backlog in the third quarter. We began shipping our higher gross margin Power product line in the month of
June, which contributed to an increase in our margin for June. April and May
gross margins were approximately 25% versus a gross margin of 32% in June. In
addition to the positive product mix change, our manufacturing variances
improved significantly from approximately $3.4 million of unfavorable variances
in the first quarter to $2.4 million of unfavorable variances in the second
quarter. We expect variances will continue to improve now that we are
producing all of our major relaunched product lines. Our announced June 1 price increase had a minimal impact on our second quarter
margins because we allowed dealers to order in May for scheduled delivery in
June. Our margins in the second quarter were also negatively
affected by the final significant sales of end of life products from our 2003
Rockford Fosgate product line. Spending for sales and marketing, engineering and general and administrative
functions for the six months ended June 30, 2004 versus 2003 remained flat as a
result of our effort to contain operating costs. In May, we reduced headcount
by 22 individuals, primarily in engineering and indirect marketing, in an
effort to align the structure of these departments with our strategic goals and
reduce operating costs. We recorded a reserve in May in the amount of $0.2
million to cover termination costs. We continue to review all our spending as
part of our efforts to return to profitability. We continued our efforts to improve liquidity in the second quarter with the
placement of $12.5 million of convertible subordinated debt. This placement is
intended to provide the bridge necessary until we return to generating positive
operating cash flow. In addition, the new debt has a five year term and the
interest rate is a low 4.5%. 8




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Results of Operations The following table shows, for the periods indicated, selected
consolidated statements of operations data expressed as a percentage of net
sales: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    72.7
    
    
    
    64.1
    
    
    
    75.7
    
    
    
    65.5Gross profit
    
    
    27.3
    
    
    
    35.9
    
    
    
    24.3
    
    
    
    34.5Operating expenses:Sales and marketing
    
    
    17.0
    
    
    
    17.1
    
    
    
    17.7
    
    
    
    17.8General and administrative
    
    
    9.3
    
    
    
    10.2
    
    
    
    11.1
    
    
    
    11.6Research and development
    
    
    4.6
    
    
    
    3.7
    
    
    
    5.8
    
    
    
    4.5Sales, general and administrative expenses
    
    
    30.9
    
    
    
    31.0
    
    
    
    34.6
    
    
    
    33.9Operating (loss) income
    
    
    (3.6
    )
    
    
    4.9
    
    
    
    (10.3
    )
    
    
    0.6Interest expense and other (income), net
    
    
    2.0
    
    
    
    (0.5
    )
    
    
    1.8
    
    
    
    0.3Income (loss) before tax
    
    
    (5.6
    )
    
    
    5.4
    
    
    
    (12.1
    )
    
    
    0.9Income tax expense (benefit)
    
    
    (1.0
    )
    
    
    2.3
    
    
    
    (3.5
    )
    
    
    0.3Minority interest
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )Net (loss) income
    
    
    (4.5
    )%
    
    
    3.2
    %
    
    
    (8.3
    )%
    
    
    0.9
    %
 Cost of goods sold primarily consists of raw materials, direct labor and
manufacturing costs associated with production of our products as well as
warranty, in-bound freight, warehousing and customer service expenses. Sales and marketing expenses primarily consist of salaries, sales commissions
and 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 our accounting, finance, management information systems,
administrative and executive departments, as well as legal, accounting and
other professional fees and expenses associated with our business. Research and development expenses primarily consist of salaries associated with
our research and development personnel and legal costs related to our
intellectual property. 9




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##### Table of Contents



Geographic Distribution of Sales Our sales by geographic region were as follows: Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(In thousands)
    
    (In thousands)REGION:United States
    
    $
    44,864
    
    
    $
    44,417
    
    
    $
    79,088
    
    
    $
    77,595Other Americas
    
    
    3,345
    
    
    
    3,484
    
    
    
    4,532
    
    
    
    4,926Europe
    
    
    4,254
    
    
    
    6,139
    
    
    
    7,526
    
    
    
    9,966Asia
    
    
    2,223
    
    
    
    2,460
    
    
    
    3,710
    
    
    
    3,801Total sales (1)
    
    $
    54,686
    
    
    $
    56,500
    
    
    $
    94,856
    
    
    $
    96,288
   (1)
    
    Sales are attributed to geographic regions based on the location of
customers. No single foreign country accounted for greater than 10% of
our sales. Six Months Ended June 30, 2004, Compared to Six Months Ended June 30, 2003 In the following discussion, certain increases or decreases may differ due to rounding. Net Sales. Sales decreased by $1.4 million, or 1.5%, to $94.9 million for the
six months ended June 30, 2004, from $96.3 million for the six months ended
June 30, 2003. Major contributors to the decline include missed turns
resulting from product delays and lower sales of Lightning Audio branded
products. The Lightning Audio shortfall compared to the prior year was
approximately $6.5 million, principally due to 2003 sales of 2 Fast 2 Furious
products. An additional $0.8 million of sales decline is attributed to the
same promotional products offered under the Rockford Fosgate brand name.
Although sales in big-box retailers continue to show strength, declines in the
domestic specialty dealer channel continue. U.S. sales in 2004 increased by
2.0% to $78.1 million compared to $77.6 million for the same period last year.
International sales decreased by $2.9 million, or 15.5% to $15.8 million for
the six months ended June 30, 2004, from $18.7 million for the six months ended
June 30, 2003. The majority of the decrease is the result of the product
delays mentioned previously, with the decrease impacting international sales
because of our decision to allocate product to the US market in order to
maintain US relationships. Cost of Goods Sold. Cost of goods sold increased by $8.8 million, or 14.0%, to
$71.8 million for the six months ended June 30, 2004, from $63.0 million for
the six months ended June 30, 2003. As a percent of sales, cost of goods sold
increased to 75.7% for the six months ended June 30, 2004, from 65.5% for the
six months ended June 30, 2003. The largest contributing factors are
manufacturing variances and premium freight, resulting from our first quarter
product development delays discussed in our prior filings. These account for
$3.5 million of the increase in cost of goods sold during 2004. General and Administrative Expenses. General and administrative expenses
decreased by $0.6 million, or 5.6%, to $10.6 million for the six months ended
June 30, 2004, from $11.2 million for the six months ended June 30, 2003. As a
percent of sales, general and administrative expenses were 11.1% and 11.6%
respectively. Abandoned acquisition costs of $0.9 million in the first half of
2003 are the basis for the decline year to date. However, we expect further
improvements in general and administrative expenses during the remainder of
2004 as a result of restructuring efforts initiated in the second quarter. 10




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Research and Development Expenses. Research and development expenses increased
by $1.1 million, or 25.6%, to $5.5 million for the six months ended June 30,
2004, from $4.3 million for the six months ended June 30, 2003. As a percent
of sales, these expenses were 5.8% and 4.5% respectively. The rise continues
to relate to increased personnel and product development costs associated with
the production delays for our core product line, as disclosed in our prior
filings. Development costs related to Simple Devices and OmniFi brands are also
contributing to the increase. We expect expenses to decline in the second half
of 2004 as a result of the restructuring efforts mentioned earlier and the
elimination of development costs associated with the product delays. Operating (Loss)
Income. Operating (loss) income decreased by $10.4 million to
a loss of $9.8 million for the six months ended June 30, 2004 as compared with
income of $0.6 million for the six months ended June 30, 2003. As a percent of
sales, operating (loss) income was (10.3)% for the six months ended June 30, 2004 and
0.6% for the same period in 2003. As mentioned previously, the primary
reasons for the decrease in operating (loss) income are unfavorable manufacturing
variances, premium freight costs, inefficiencies and development costs
associated with the delayed relaunch of our core products, as well as
additional selling and administrative expenses in acquired companies. Interest and Other Expense (Income), Net. Interest and other expense (income)
net, primarily consists of interest expense and currency gains and losses. Net
interest and other expense (income), increased by $2.0 million to result in an
expense of $1.7 million for the six months ended June 30, 2004, compared to
income of $0.3 million for the six months ended June 30, 2003. Of the
increase, $0.6 million resulted from the repayment of our junior credit
facility with Hilco out of the proceeds of our new convertible notes offering.
Interest expense increased $0.5 million to $1.0 million for the six months
ending June 30, 2004, compared to $0.5 million for the same period 2003. In
addition, $0.5 million of currency gains during the first six months of 2003
compare to ($0.1) million of currency loss during the same period of 2004. Income Tax (Benefit)
Expense. Income tax (benefit) expense decreased by $3.6 million, to
a tax benefit of $3.4 million for the six months ended June 30, 2004, compared
to a tax expense of $0.3 million for the six months ended June 30, 2003. The
effective income tax rates were 29.3% and 28.7% respectively. We have reviewed
our deferred tax assets and determined that, as of May 2004, no additional tax
benefit will be recorded. Three Months Ended June 30, 2004, Compared to Three Months Ended June 30, 2003 In the following discussion, certain increases or decreases may differ due to rounding. Net Sales. Sales decreased by $1.8 million, or 3.2%, to $54.7 million for the
three months ended June 30, 2004, from $56.5 million for the three months ended
June 30, 2003. The decrease is primarily the result of product delays
associated with the relaunch of our core product line. Although production
delays moderated as the second quarter progressed, the current backlog of $7.2
million at the end of the quarter was a result of product availability issues
and had an unfavorable effect on the current period as compared to the backlog
of $1.9 million at the end of the same period in 2003. U.S. sales increased by $0.5 million, or 1.1%, to $44.9 million for the three
months ended June 30, 2004, from $44.4 million for the three months ended June
30, 2003. International sales decreased $2.3 million, or 19.0%, to $9.8
million for the three months ended June 30, 2004, from $12.1 million for the
same period last year. Our international markets were unfavorably affected
because we concentrated on delivering delayed products to the domestic
marketplace and we had a larger than normal volume of new products in transit
to foreign warehouses at the close of the current period. 11




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Cost of Goods Sold. Cost of goods sold increased by $3.5 million, or 9.7%, to
$39.7 million for the three months ended June 30, 2004, from $36.2 million for
the three months ended June 30, 2003. As a percent of sales, cost of goods
sold were 72.7% and 64.1% respectively. A heavier mix of lower margin product
caused by the unavailability of higher margin product until late in the
quarter, manufacturing variances and premium freight were the primary cause of
this increase. General and Administrative Expenses. General and administrative expenses
decreased by $0.7 million, or 12.0%, to $5.1 million for the three months ended
June 30, 2004, from $5.8 million for the three months ended June 30, 2003. As a
percent of sales, general and administrative expenses were 9.3% and 10.2%
respectively. The decrease was primarily attributable to abandoned acquisition
costs and restructuring costs associated with our German operations incurred in
2003. Research and Development Expenses. Research and development expenses increased
by $0.4 million, or 20.2%, to $2.5 million for the three months ended June 30,
2004, from $2.1 million for the three months ended June 30, 2003. As a percent
of sales, these expenses increased to 4.6% for the three months ended June 30,
2004, from 3.7% for the for the same period last year. Increases are
primarily the result of costs associated with the relaunch delays for our core
products. Operating (Loss)
Income. Operating (loss) income decreased by $4.8 million, to a loss
of $(2.0) million for the three months ended June 30, 2004, from income of $2.8
million for the three months ended June 30, 2003. As a percent of sales,
operating (loss) income decreased to (3.6)% for the three months ended June 30, 2004,
from 4.9% for the three months ended June 30, 2003. The decrease in operating
income is attributable to unfavorable manufacturing variances, premium freight
costs, inefficiencies and development costs associated with the delayed
relaunch of our core products, as well as additional selling and administrative
expenses in acquired companies. 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 to an expense of $1.1
million for the three months ended June 30, 2004 as compared to income of $0.3
million for the three months ended June 30, 2003. Of the increase, $0.6
million was a result of the termination and payoff of the Hilco facility.
Interest expense increased by $0.3 million to $0.5 million for the three months
ending June 30, 2004, compared to $0.2 million for the
same period of 2003. Income Tax (Benefit) Expense. Income tax expense decreased by $1.8 million to a
tax benefit of $0.5 million for the three months ended June 30, 2004, from a
tax expense of $1.3 million for the three months ended June 30, 2003. The
effective income tax rates were 16.9% and 42.6% respectively. This
reduced our effective tax rate for the period.  We have
reviewed our deferred tax asset and determined that, as of May 2004, no
additional tax benefit will be recorded. 12




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Liquidity and Capital Resources We have financed our business primarily using existing working capital, cash
flows from operations, the proceeds from our initial public offering, and bank
borrowings. During the second quarter of 2004, we completed the $12.5
million private placement of our convertible notes, discussed in more detail
below, to assist in our efforts to finance our business. Our cash flow used in
operations was $9.8 million for the six months ended June 30, 2004 compared to
$9.1 million used in operations for the six months ended June 30, 2003. The
net loss and inventory increases accounted for most of our use of cash. These
uses were partially offset by an increase in our accounts payable. We rely on bank borrowings to finance operations and purchases of property and
equipment. Because of our net losses and substantial need for cash during the
last year, we are near to the credit limits on our current financing
arrangements and are focused on reducing our need for cash. If we continue to
require substantial additional cash resources, we may need to seek additional
debt or equity financing. We cannot be sure that such financing will be
available on acceptable terms. We expect to continue to rely on our credit
facility to finance operations and purchases of property and equipment even
after our operating cash flows improve. We entered into a 3-year asset based credit facility with Congress Financial
Corporation (Western) as Agent and Wachovia Bank, National Association as
Arranger on March 29, 2004. This credit facility replaced the $30 million
revolving credit facility we previously maintained with Bank of America, N.A.
and Bank One, Arizona, N.A. This credit facility is collateralized by
substantially all of our assets and has a variable interest rate of LIBOR plus
300 basis points or Prime plus 100 basis points. In addition, the covenants
limit the payment of dividends; however, we have not historically paid
dividends. At the time of the closing of the convertible note financing
discussed in the next paragraph, we modified certain terms of the Congress
facility. This amendment reduced the current availability of the line from $45
million to $35 million until Congress is able to syndicate the balance of the
facility and it added a rolling EBITDA covenant that anchors in August of 2004.
The reduction of current availability has put stress on our working capital
position and we are using most of our available credit facility. On June 11, 2004 we entered into, and closed, agreements for the private
placement of $12.5 million of our 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 note holders may convert the notes into our common stock at any
time before the scheduled maturity date of June 10, 2009. The conversion price
is $5.29 per share, which represents a 15% premium over the closing price of
our common stock on June 9, 2004. If fully converted, the Notes will convert
into 2,362,949 shares of our common stock. We have the right to automatically
convert the notes into common stock if the common stock trades above a
specified target price for a specified period. We may also force the exercise
of the warrants under certain circumstances prior to their expiration date. We used the net proceeds from the sale of the notes to pay off our $4 million
junior term loan with Hilco Capital LP (Hilco) and to pay down the revolving
asset based credit facility with Congress Financial Corporation (Western), as
agent (Congress). This resolved the default under the Hilco facility
previously reported in our first quarter 10-Q. We incurred expenses of
approximately $0.6 million to exit the Hilco facility, including the write off
of unamortized loan origination fees and the payment of certain guaranteed
fees. The payoff of the Hilco facility eliminated the default under the
cross-default provision of the Congress facility and we received a waiver of
this violation of covenants on the Congress facility. Our inventory position increased from $47.4 million at the end of first quarter
of 2004 to $50.1 million at the end of the
second quarter. This inventory increase was due to (a) purchases of raw
materials for the Power product line launch that began in June and (b)
increases in finished goods inventory to begin to build safety stock levels on
our Punch product line. This inventory is historically high and it is taking
longer than we had hoped for our inventory management initiatives to reduce
inventory levels due to the large amount of material brought in to help us
overcome the product launch delays for our core products and increase our
manufacturing flexibility. We have confidence that we are taking the correct
steps to improve our inventory position and expect our inventory levels to
decrease in the second half of 2004. We had working capital of $40.5 million at June 30, 2004, compared to $38.1
million at December 31, 2003. The significant components of working capital
for the quarter ended June 30, 2004 include: 13




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There were no cash and cash equivalents at June 30, 2004 versus $0.7 million
as at December 31, 2003. Our cash and cash equivalent balance decreased due
to the negative cash flow from operations. Due to the daily sweep of cash
by Congress, we do not carry any cash balances. The bank overdraft
presented as a current liability represents outstanding checks, which we
will pay when presented using advances from the Congress facility. Our net accounts receivable were $42.9 million, or 70.6 days sales
outstanding (DSO) at June 30, 2004 compared to $31.8 million or 77.6 DSO at
December 31, 2003. The increase in accounts receivable balances is due to
seasonally higher sales. The DSO improvement is due to strengthening of our
collection efforts. Net inventory increased $12.2 million, from $37.9 million at December 31,
2003 to $50.1 million at June 30, 2004. This increase was due to increased
raw material requirements for the Rockford Fosgate product line redesign, an
increase in inventory in transit, and increased finished goods inventory of
our Omnifi product. Accounts payable increased $19.0 million, from $9.4 million at December 31,
2003 to $28.4 million at June 30, 2004. This increase was primarily due to
increased inventory purchases and extending of vendor payment terms. We have
obtained extended terms from most of our vendors to compensate for the
longer payment terms expected of us by our big box and mass merchandising
customers. The Congress Facility requires that we maintain blocked lock box accounts,
whereby Congress takes possession of all cash receipts and these amounts are
applied to reduce the debt outstanding. 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, we have recorded the outstanding balance
 on the Congress Facility as short-term. We expect to
maintain the facility for the entire three-year term. The treatment of our
credit facility as a current liability reduced our working capital by the
entire $25.7 million balance of that facility. Investing activities used cash of $4.3 million in the six months ended June 30,
2004 versus $3.5 million for the six months ended June 30, 2003. Capital
expenditures, the primary use of cash from investing activities, were $2.8
million for the first six months of 2004 versus $3.8 million for the first six
months of 2003. We continue working to improve management of our capital
spending and have imposed more stringent payback requirements for approval of
capital spending. Our capital spending is primarily in tooling for specific
production lines, general machinery and equipment to support manufacturing and
computer hardware and software to support our operations. We do not anticipate
significant changes in our future capital spending requirements. Off Balance Sheet Arrangements We do 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 (VIEs), which would have
been established for the purpose of facilitating off-balance sheet
arrangements. As of June 30, 2004, we are not involved in any unconsolidated
VIE transactions. Contractual Obligations as of June 30, 2004 We had certain cash obligations at June 30, 2004 due as follows (dollars in
thousands) Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsCurrent portion of
long-term debt
    
    $
    25,668
    
    
    $
    245
    
    
    $
    25,423Long-term notes payable
    
    $
    12,500
    
    
    
    
    
    
    
    
    
    
    $
    12,500Operating Leases
    
    $
    9,187
    
    
    $
    2,947
    
    
    $
    4,766
    
    
    $
    1,474
 There were not material changes in Operating Leases since December 31, 2003. 14




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##### Table of Contents



We did not have any material outstanding noncancelable purchase obligations at
June 30, 2004. One of our vendor sourcing agreements includes contractual
terms that would require us to pay for excess raw materials in the event the
program is terminated and to honor submitted purchase orders if we attempt to
cancel after a stated production lead time. Under this agreement, we have
requirements to purchase $0.4 million of additional raw materials for the
Omnifi product during 2004. Several of our other sourcing agreements require
us to place monthly purchase orders, but do not require a minimum purchase
quantity or dollar amount. We do not anticipate significant liability in
connection with these contractual requirements. Critical Accounting Policies and Estimates The methods, estimates and judgments we use in applying our accounting policies
have a significant impact on the results we report in our consolidated
condensed financial statements. We evaluate our estimates and judgments on an
on-going basis. We base our estimates on historical experience and assumptions
that we believe to be reasonable under the circumstances. Our experience and
assumptions form the basis for our judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual
results may vary from what we anticipate and different assumptions or estimates
about the future could change our reported results. We believe the following
accounting policies are the most critical to us, in that they are important to
the portrayal of our financial statements and they require our most difficult,
subjective or complex judgments in the preparation of our consolidated
financial statements: Revenue Recognition.We recognize revenue pursuant to Staff Accounting Bulletin
No. 104, Revenue Recognition in Financial Statements. Accordingly, we recognize
revenue and record sales, net of related discounts, when all of the following
criteria are met:  
    
    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. We sell almost all of our products F.O.B. our facility, so that upon shipment
of products, the above criteria are met and revenue is recognized.
Additionally, we recognize revenue from the sale of software in accordance with
SOP 97-2, Software Revenue Recognition.Revenue is recorded from packaged
software and license fees when persuasive evidence of an arrangement exists,
the software product has been shipped, the fees are fixed and determinable,
collectibility is reasonably assured and vendor-specific objective evidence of
fair value exists for any undeliverable products or services (elements) of
the arrangement. We also record 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 we estimate, we may need to
make additional reductions to revenue. Intangible Assets.On January 1, 2002, we adopted Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. When we account for acquired businesses
as purchases, we allocate 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, we allocate any
excess purchase price over the fair value of the net assets acquired to
goodwill. 15




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##### Table of Contents



Prior to January 1, 2002, we amortized goodwill over the useful life of the
underlying asset, not to exceed 15 years. On January 1, 2002, we began
accounting for goodwill under the provisions of SFAS Nos. 141 and 142. As at
June 30, 2004, we had gross goodwill of $7,435,000 and accumulated amortization
of $374,000. For the six months ended June 30, 2004 and 2003, we did not
recognize amortization expense related to goodwill. In assessing the recoverability of our goodwill and other intangibles, we 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, we may be required to record
impairment charges for these assets not previously recorded. Some factors we
consider important which could trigger an impairment review include the
following:  
    
    Significant underperformance relative to expected historical or projected future operating results;
    
    Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
    
    Our market capitalization relative to net book value; and
    
    Significant negative industry or economic trends. We have 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. We 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 we determined that our
goodwill was not impaired and it was not necessary to undertake the second step
in the two-step process. During the six months ended June 30, 2004 and 2003, we
did not record any impairment losses related to goodwill and other intangible
assets. Allowance for Doubtful Accounts.We maintain an allowance for doubtful
accounts, based on historical rates, for estimated losses resulting from the
inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, we might need to make additional allowances. Excess and Obsolete Inventory.We maintain a reserve for estimated obsolescence
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. We review 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 those we
project, we may need to take additional inventory write-downs. Any change to
the reserve arising from forecast revisions is reflected in cost of sales in
the period the revision is made. Warranty.We maintain a warranty reserve, based on historical rates, for costs
associated with the repair or replacement of product that fails to meet our
standard warranty against defects in material and workmanship. Should actual
product failure rates differ from our estimates, we would need to make
revisions to our estimated accruals. Income taxes. We 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. We presently have $6.7 million in
deferred tax assets as of June 30, 2004, which we review quarterly for balance
and recoverability. 16




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We must assess the likelihood that we will be able to recover our deferred tax
assets. If recovery is not likely, we must increase our provision, or decrease
our benefit, by recording a valuation allowance against the deferred tax assets
that we estimate will not ultimately be recoverable. Inflation.Inflation has not had a significant impact on our operations since
we operate in a market that requires continuing price decreases and we have
historically been able to insist on continuing price decreases from our
suppliers. Rising metal prices and increasing transportation costs may have an
impact on our operations in the remainder of 2004, if we are not able to secure
concessions from our suppliers. 
 Item 3.       Quantitative and Qualitative Disclosures about Market Risk Our primary market risk exposures are in the areas of interest rate risk and
foreign currency exchange rate risk. Our holdings of cash equivalents are
subject to interest rate fluctuations, but we believe this risk is immaterial
due to the short-term nature of these investments and the relatively small cash
balances we carry. The outstanding balances on our credit facilities are also
subject to interest rate fluctuations. The value of the U.S. dollar affects our financial results. Changes in exchange
rates may positively or negatively affect our revenues, gross margins,
operating expenses and shareholders equity as expressed in U.S. dollars.
Historically, our exposure to currency exchange rate fluctuations was modest
due to the fact that we sold our products primarily in U.S. dollars and held
only a small percentage of our assets outside the U.S. However, we conduct a
growing portion of our business in foreign currency and we are increasing our
billings in local currencies in Canada and Europe. During the first quarter of 2003, our Board of Directors approved and we began
to implement a new foreign currency hedging policy. The goal of the program is
to provide stability to the U.S. Dollar values of non-functional currency cash
flows. Although it is impossible to eliminate all currency risk, implementation
of this program should mitigate the risk of significant changes in our earnings
due to short-term foreign exchange fluctuations. During the year ended
December 31, 2003, we 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. We did not engage in any hedging activity during
the first six months of 2004 because we determined that we had uses that are
more important for our available cash. At June 30, 2004, we did not have any
outstanding forward contracts. 
 Item 4.       Controls and Procedures Our principal executive officer and principal accounting officer reviewed our
disclosure controls and procedures during the last 90 days in order to comply
with the SECs requirements for certification of this Form 10-Q. Our Chief
Financial Officer resigned effective July 13, 2004 and we have appointed an
interim C.F.O. who is performing the duties of principal accounting officer and
has participated in the review of our disclosure controls and procedures in
connection with the preparation of this Form 10-Q. Since we became public, we have maintained a disclosure policy committee, which
currently includes our CEO, CFO, Chief Accounting Officer, Treasurer, Director
of Investor Relations, and General Counsel. Our officers, directors, and
employees are responsible to inform the committee about material developments
in our business so that the committee
can decide when we need to make new filings with the SEC or make disclosures to
the public markets about developments in our business. The disclosure policy committee, other senior managers, and our finance staff
are responsible for preparation of our periodic reports. Our finance staff and
senior managers: 17




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##### Table of Contents




    
    monitor our operations and financial performance on a regular basis,
    
    evaluate how our performance may affect our reports to the SEC, and
    
    schedule preparation of our periodic reports. We use our Oracle information system to develop the financial information used
in our reports beginning shortly after the end of each reporting period.
Members of our finance staff and our senior managers compile this information,
as well as information about our business from our officers, directors, and
employees, and use the compiled information to prepare our reports to the SEC.
Our procedures have allowed us to file our reports within the times that the
SECs rules require. Based on their review of our disclosure controls and policies, our principal
executive officer and principal accounting officer concluded that our
disclosure controls and procedures are effective and that they allow us to
comply with our periodic reporting obligations. We believe the reports we have
filed are in compliance with the SECs requirements. We have not made significant changes to our internal controls, and we are not
aware of changes in other factors that could significantly affect these
controls, since our principal executive officer and principal accounting
officer reviewed our disclosure controls and procedures. 
 Part II. Other Information 
 Item 1.       Legal Proceedings. Since the date we filed our Form 10-Q for the first quarter, filed with the SEC
on May 17, 2004, there have been no additional material developments in
connection with the patent claim or litigation with a former distributor as
described in the Legal Proceedings section of our Annual Report. We are and may continue to be a party to various lawsuits and arbitrations from
time to time. As at June 30, 2004, we were not a party to any legal proceedings
that we believe are material, other than the effect of the expenses associated
with the lawsuits described in our Annual Report. 
 Item 4.       Submission of Matters to a Vote of Security Holders We held our annual meeting of shareholders on Wednesday, May 12, 2004. The
election of all our directors was submitted to our shareholders at the meeting
and the shareholders re-elected all six of our directors. The names of the
directors elected, and the number of votes each received, is as follows: Name
    
    Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-VotesW. Gary Suttle
    
    
    8,146,330
    
    
    
    0
    
    
    
    49,931
    
    
    
    0Nicholas G. Bartol
    
    
    8,181,541
    
    
    
    0
    
    
    
    14,720
    
    
    
    0Ralph B. Godfrey
    
    
    8,150,061
    
    
    
    0
    
    
    
    46,200
    
    
    
    0Jerry E. Goldress
    
    
    8,144,730
    
    
    
    0
    
    
    
    51,531
    
    
    
    0Timothy C. Bartol
    
    
    8,122,396
    
    
    
    0
    
    
    
    73,065
    
    
    
    0John P. Lloyd
    
    
    8,150,061
    
    
    
    0
    
    
    
    46,200
    
    
    
    0
 18




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##### Table of Contents



Item 6.       Exhibits and Reports on Form 8-K  (a)
    
    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
    
    Specimen Common Stock Certificate+4.2
    
    Reference is made to the Articles of Incorporation, as
amended, and the Restated Bylaws, as amended, filed as
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.7 for a description
of the rights of the holders of Common Stock.31.1
    
    Certification Required by Section 302 of the Sarbanes-Oxley Act31.2
    
    Certification Required by Section 302 of the Sarbanes Oxley Act32
    
    Certification Required by Section 906 of the Sarbanes Oxley Act99.1
    
    Risk Factors That May Affect Rockfords Operating Results,
Business Prospects and Stock Price+++
  +
    
    Previously filed with our registration statement on Form S-1, which the
SEC declared effective on April 19, 2000 and/or amendments++
    
    Previously filed on August 11, 2000 with our Quarterly Report on Form
10-Q for the quarter ended June 30, 2000.+++
    
    Previously filed on March 30, 2004, with our Annual Report on Form 10-K
for the year ended December 31, 2003.  (b)
    
    During the period from April 1, 2003, through June 30, 2003, Rockford
filed the following reports on Form 8-K: April 6, 2004       Report disclosing on Item 9 that Rockford had issued a news
release regarding its closing of a new asset based credit
facility. This report furnished a copy of the press release
under Item 9 of Form 8-K. May 21, 2004       Report disclosing on Item 9 that Rockford had issued a news
release regarding Rockfords results of operations for the
1st Quarter, ended March 31, 2004. This report furnished a
copy of the press release under Item 9 of Form 8-K. 19




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##### Table of Contents



June 15, 2004       Report disclosing on Item 9 that Rockford had issued a news
release regarding Rockfords guidance for the 2nd Quarter of
2004. This report furnished a copy of the certification
under Item 9 of Form 8-K. June 15, 2004       Report disclosing on Item 5 that Rockford had entered into
agreements for the private placement of $12,500,000 of 4.5%
Convertible Senior Subordinated Secured Notes due 2009 and
warrants to purchase 649,810 shares of common stock. This
report described certain terms of the notes and filed as
exhibits the agreements relating to the notes and warrants.
The report also filed as an exhibit the news release
announcing the financing. 
 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. ROCKFORD CORPORATIONDate: August 10, 2004
    By:
    /s/ Murray CohenMurray CohenVice President of Finance,
  Chief Financial Officer and Secretary
(Principal Financial Officer
  and Duly Authorized Officer) 20




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##### 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
    
    Specimen Common Stock Certificate+4.2
    
    Reference is made to the Articles of Incorporation, as
amended, and the Restated Bylaws, as amended, filed as
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.7 for a description
of the rights of the holders of Common Stock.31.1
    
    Certification Required by Section 302 of the Sarbanes-Oxley Act31.2
    
    Certification Required by Section 302 of the Sarbanes Oxley Act32
    
    Certification Required by Section 906 of the Sarbanes Oxley Act99.1
    
    Risk Factors That May Affect Rockfords Operating Results,
Business Prospects and Stock Price+++
  +
    
    Previously filed with our registration statement on Form S-1, which the
SEC declared effective on April 19, 2000 and/or amendments++
    
    Previously filed on August 11, 2000 with our Quarterly Report on Form
10-Q for the quarter ended June 30, 2000.+++
    
    Previously filed on March 30, 2004, with our
Annual Report on Form 10-K for the year ended December 31, 2003 21