SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               ------------------

                                   FORM 10-KSB
                   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002    Commission file number 333-43770

                             SLS INTERNATIONAL, INC.

Incorporated under the Laws of the            I.R.S. Employer Identification No.
    State of Delaware                                     52-2258371

                 3119 South Scenic, Springfield, Missouri 65807
                                 (417) 883-4549

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                                      None

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

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

         The revenue of SLS International, Inc. in the year ended December 31,
2002 was $790,582.

         The aggregate market value of SLS International, Inc. voting stock held
by nonaffiliates was approximately $2,647,951 on May 5, 2003.

         On May 5, 2003, 23,196,528 shares of SLS International, Inc. common
stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None.

           Transitional Small Business Disclosure Format (check one):

                              Yes [ ]  No [x]



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                                TABLE OF CONTENTS
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PART I

Item 1.           Business........................................................................       1
Item 2.           Properties......................................................................       11
Item 3.           Legal Proceedings...............................................................       12
Item 4.           Submission of Matters to a Vote of Security Holders.............................       12

PART II

Item 5.            Market for Registrant's Common Equity and Related Stockholder Matters........         13
Item 6.            Management's Discussion and Analysis of Financial Condition and Results of
                              Operations..........................................................       14
Item 7.            Financial Statements...........................................................       17
Item 8.            Changes in and Disagreements with Accountants on Accounting and Financial
                              Disclosure..........................................................       17

PART III

Item 9.            Directors, Executive Officers, Promoters and Control Persons; Compliance
                              with Section 16(a) of the Exchange Act..............................       18
Item 10.           Executive Compensation.........................................................       19
Item 11.           Security Ownership of Certain Beneficial Owners and Management and
                              Related Stockholder Matters.........................................       20
Item 12.           Certain Relationships and Related Transactions.................................       21
Item 13.           Exhibits and Reports on Form 8-K...............................................       21
Item 14.           Controls and Procedures........................................................       24


SIGNATURES........................................................................................       25


CERTIFICATIONS....................................................................................       26

FINANCIAL STATEMENTS TABLE OF CONTENTS............................................................      F-1
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                                     PART I

Item 1.           Business.
                  --------

         We manufacture premium-quality loudspeakers and sell them through our
dealer networks. The speakers use our proprietary ribbon-driver technology and
are generally recognized in the industry as high-quality systems. We sell a
Professional Line of loudspeakers, a Commercial Line of loudspeakers, and Home
Theatre systems.

         From the early 1970's through 1999 we derived substantially all of our
revenue from marketing, renting, selling and installing sound and lighting
systems under the name Sound and Lighting Specialist Inc. In June 1999, due to
the favorable customer acceptance of our custom-designed loudspeaker systems, we
ceased these historical operations and began focusing all efforts towards
becoming a loudspeaker manufacturer and selling to dealers and contractors on a
wholesale basis. As a result, we have been essentially in a development stage,
as we are bringing to market products that we introduced in 2000 and 2001 and
designing and bringing to market additional products.

         In June 2000, we asked dealers and distributors to sell our
Professional Line of products. These dealers and distributors started to form
our current network of approximately 50 dealers and 7 foreign distributors and
we began shipping to them. However, most of the Professional Line required new
ribbon drivers that we completed and implemented into the product line in early
2001.

         In September 2000, we introduced our Home Theatre systems, and sales
for those systems began immediately. From September through December 2000, we
added 20 new Home Theatre dealers in the US and began marketing efforts to
establish distributors and dealers outside the US.

         In June 2001, we introduced a Commercial Line of loudspeakers that use
our PRD500 Ribbon Driver and, in September 2001, we finished the development of
our PRD1000 Ribbon Driver and began implementing it into our Professional Line.
Our PRD drivers, which we manufacture, upgraded the previous drivers that we
purchased from third-party manufacturers; and our cost is approximately
one-sixth of the price that we had been paying for the previous drivers.

         SLS International, Inc. was formed on July 25, 2000 and had no previous
operations. On the same date, this corporation merged with Sound and Lighting
Specialist Inc., its sole shareholder, and SLS International, Inc. was the
surviving corporation. All of the financial and other information reported for
periods prior to the merger are the results of operations of Sound and Lighting
Specialist, Inc. All of the operating activity reported for periods after the
merger are the results of operations of SLS International, Inc. The information
in this section should be read together with the financial statements, the
accompanying notes to the financial statements and other sections included in
this report.

         In July 2000, our Board of Directors declared a 12,800 to one, forward
stock split. As a result, for each outstanding share of SLS, we issued an
additional 12,800 shares. The resulting total of outstanding shares of SLS, as
reorganized, became 14,340,480 shares of common stock. All references to shares
in this prospectus, whether prior to or after the reorganization, are references
to the outstanding shares of SLS, as it has been reorganized.

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DEVELOPMENT

         Initially, we engaged in the direct sale and installation of sound
systems for various customers and rented lighting and sound equipment. The
business evolved into the business of designing cabinets for loudspeaker systems
for sale and installation. We manufactured the cabinets and purchased the
components, which consisted of compression drivers and woofers from independent
manufacturers, and sold and installed the systems for our customers. The
compression drivers made the high frequency or treble sounds and the woofers
made the low frequency or bass sounds. During 1994, we expanded our line of
loudspeaker systems to include speakers that used ribbon drivers instead of
compression drivers. At that time, we purchased the ribbon drivers from an
independent manufacturer. As we developed our ribbon driver line of loudspeakers
we relied on our Tef 20 computer acoustic measurement system to analyze and
measure sound waves. This system is the industry standard for loudspeaker
designing and is used by most of the major loudspeaker manufacturers in the
design and manufacture of loudspeaker systems. Our Tef 20 system indicated that
the ribbon driver systems that we were designing were superior in several ways
to the compression driver systems that we previously used. The ribbon driver
system that we were designing had a smoother frequency response. The level of
mid-range sound and treble sound that the ribbon driver systems were producing
was more even and therefore the loudspeaker reproduced whatever sound it
received in a more natural manner. Also, the ribbon driver did not produce the
same level of distortion when played at higher frequency levels, as compared to
the compression driver. This resulted in a positive reaction from our customers
to the quality of sound, and as a result we decided to change our overall
strategy.

         In the latter part of 1998, we determined to focus our efforts solely
on the manufacture and sale of lines of ribbon driver speaker systems. Our
speaker systems product lines consist of:

         o        The Professional Contractor Speaker System, a more expensive
                  "professional" line;
         o        The Universal Soldier Speaker System, a less expensive
                  "commercial" line; and
         o        The Home Theatre Speaker System.

         The market for the ribbon driver product line is new and growing. Our
future success is uncertain because the loudspeaker market is experiencing rapid
technological advances, changing customer needs and evolving industry standards.

         To realize our expectations regarding our operating results, we will
depend on:

         o        Market acceptance of our ribbon driver products;
         o        Our ability to compete in quality and price for our products;
         o        Our ability to develop, in a timely manner, new products and
                  services that keep pace with developments in technology;
         o        Our ability to meet changing customer requirements; and
         o        Our ability to enhance our current products and services and
                  deliver them efficiently through appropriate distribution
                  channels.

TECHNOLOGY

         The function of loudspeakers is to increase the volume of sound in
order to enable the sound to be heard by many persons occupying a large area.
For many years, the loudspeaker industry used certain types of components to
increase the volume of sound. The technology originally permitted only the types


                                       2
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of components that required low electrical power in order to achieve high volume
sound. In the past, loudspeakers consisted in part of a component called the
compression driver. This device generally is used to reproduce the mid-range and
high frequencies of sound. Early compression drivers consisted of a diaphragm
made of a linen-based manmade resin material that is enclosed in a chamber. This
diaphragm was generally formed as a partial sphere, similar to a ball that has
been cut in half. The edges of the diaphragm were then wound many times with a
fine electrical wire called a voice coil. Electrical current from an amplifier
is sent through the wire and the diaphragm vibrates to produce the sound wave.
However, in the compression driver, the diaphragm is enclosed in a chamber with
the sound exiting out of a relatively small hole that increases the velocity of
the sound. This is similar to forcing air or water through a small hole to
increase its velocity. The disadvantage of the compression driver is that before
the sound waves are forced through the small hole they are first bounced around
inside of the chamber and become distorted and tend to produce a certain amount
of listening fatigue for audiences. Today the compression drivers use a
diaphragm made from aluminum and titanium and can produce the same high volume
but with higher frequency sounds. Although today's compression drivers are
superior to those of the past due to the new materials, the negative aspects
still exist to a degree because of the nature of the design of the compression
driver.

         Originally the diaphragm of the ribbon driver consisted of a material
made from mylar plastic. This plastic component produced a better quality sound
but was not able to handle the amount of electrical current needed to produce a
high level of sound. This caused the component to melt and thereby cease to
function. In addition, the ribbon drivers required relatively large, cumbersome
and heavy magnet assemblies using ceramic magnets. Over the years the ribbon
driver was developed using higher-powered magnets and materials that could
withstand higher temperatures.

         The ribbon driver works in a different manner than the compression
driver. The diaphragm of the ribbon driver is a flat piece of mylar plastic or
in the case of SLS ribbon drivers, a high temperature Kapton plastic. These
materials are considerably thinner and lighter than the linen or even the
aluminum or titanium diaphragms of the compression drivers. The ribbon diaphragm
is laminated on one side with a thin coating of aluminum. This aluminum is then
chemically etched to leave wire-like traces of aluminum that act as a voice
coil, vibrating the diaphragm when current is applied. The diaphragm of the
ribbon driver is not in a chamber and is open and visible to the air. The sound
waves are not restricted and therefore they do not have the distorted properties
of the compression driver. Because the diaphragm of the ribbon driver is so thin
and light it reacts very quickly to the electrical signal and does not introduce
new or resonated sounds created by the material of the diaphragm itself. This
enables the ribbon driver to produce a much purer reproduction of the sound
source without adding any tones of its own.

         In 1994, we purchased several ribbon drivers from a non-affiliated
European company to determine if they could be used in our loudspeaker systems.
Prior to this, we were only using compression drivers. We immediately noticed
the difference in the quality of sound and began to install the ribbon drivers
in some of our own smaller speaker cabinets that did not require high electrical
power. Due to the positive response from our customers we decided to develop a
completely new product line using the ribbon drivers that we purchased from the
European manufacturers.

In February 2000, we retained Igor Levitsky, an electro-acoustics engineer to
develop a new technology ribbon driver for us. We requested that he develop two


                                       3
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different-sized ribbon drivers and we paid a fixed fee for his work. We also
agreed to pay him a royalty of $2,000 per year for an indefinite period of time.
In April 2001, Mr. Levitsky became our employee and waived his royalty. Research
and development expense was $17,568 in 2001 and $22,095 in 2002. The cost of
such research and development is not borne directly by our customers.

         The ribbon driver that we have developed uses new lightweight
high-powered magnets and plastics that can withstand high temperatures. This
enables the speaker system to have increased power-handling ability and higher
sound volume with substantial reliability and clarity. We have completed
development of our own proprietary ribbon driver, model PRD 500, a 5-inch
version of the ribbon driver. We have recently started to directly manufacture
models PRD 500 and PRD 1000, for use in our Home Theatre line, Universal Soldier
Commercial line and our Professional line of loudspeakers. Sale of the
Commercial line of loudspeakers with direct-manufactured ribbon drivers began in
June 2001, and sales of the Professional line of products with
direct-manufactured ribbon drivers began in September 2001. This direct
manufacture of ribbon drivers substantially reduces our product cost, and it
also provides improved performance for our loudspeaker systems. We also expect
to use the PRD 1000 in a proposed Cinema Line of loudspeakers for movie houses.

PRODUCTS

         Previously, when we were involved in selling and installing our
products for end-users, our product line consisted of twelve models of
Professional Contractor speaker systems. As a result of the change in operations
to a wholesale business, selling to distributors, we have increased our product
lines. In addition to the models previously manufactured, we have added two new
product lines, consisting of twelve new models, and increased the number of
models we manufacture under our Professional Contractor System.

         Our Professional Contractor Speaker System line presently consists of
eighteen models of speaker systems, each model consisting of a speaker cabinet
and components of woofers which provide the bass sounds and ribbon drivers which
provide the treble sound. This line, the cabinets of which we generally
manufacture, is usually sold to large contractors and is installed for churches,
theatres, school auditoriums, casinos, night clubs and touring production
companies. Although we now manufacture our own ribbon drivers, the woofers are
manufactured to our specifications by non-affiliated manufacturers.

         Our Commercial line, the Universal Soldier Speaker System, consists of
lower-cost speakers which are designed to be sold by music stores for
orchestras, disc jockeys and the less expensive commercial market. There are
twelve models of different size, with less expensive components that produce
varying sound levels and area coverage capabilities. These are equal in quality
to, but do not produce the sound levels of, our Professional Contractor Speaker
System Line.

         We recently developed a new line of loudspeakers for the home theatre
market. We intend to direct a substantial effort to capture an appropriate
market share of the home theatre market. Our Home Theatre Loudspeaker System
consists of four models that use the smallest unit of our Professional
Contractor Loudspeaker System as their basis. We manufacture the cabinetry and
the ribbon drivers for this system, our PRD 500. These systems are designed for
boardroom and for the home. The home theatre market requires equipment that uses
five or more speakers placed around a room. This configuration provides the
listener with "surround sound" similar to a movie theatre experience. Almost all
current movies are now produced in surround sound, which uses at least five
speakers plus a sub-woofer system.

                                       4
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         Revenue from our ribbon driver product line is expected to account for
a material portion of our revenue for the foreseeable future. Our financial
performance will depend on market acceptance of our ribbon driver technology and
products. The sound system industry continually introduces technological
developments, frequently announces new products, and has evolving industry
standards and changing customer requirements. As a result, if our ribbon driver
technology and product line do not rapidly achieve sufficient market acceptance,
we may not be able to achieve expected revenues or profits.

FUTURE PRODUCTS

         We re-packaged certain models of our Professional Contractor Sound
Systems for the cinema and movie theatre market by simplifying the cabinetry. In
a typical movie house, the speakers are usually not displayed in view of the
public, which allows for simplified cabinetry. The new cabinetry is designed to
be less costly, as are the other components, which we expect to provide our
representatives with a cost advantage in marketing our system to cinema owners.
At present, a total of ten models are being repackaged for this line. We are
conducting tests on the repackaged models and plan to introduce them in Fall
2003.

         We have developed a new less-expensive 5.1 Home Theater system, which
is nearly ready for production. All research and development has been completed,
and we are waiting for the delivery schedule from our vendors for the cabinets
and other parts that we do not manufacture.

MANUFACTURING AND SOURCING

         We generally design and manufacture our own cabinets for our product
lines, and on occasion contract certain models manufactured by independent,
established, local and other woodcrafters. These manufacturers construct the
cabinetry to our specifications. Our ribbon drivers are either directly
manufactured or purchased from a non-affiliated manufacturer, B&G Corporation.
The principal suppliers of our woofers are Belisle Acoustics, Eminence, PHL and
Seas Speaker Component Manufacturers. The manufacture of our own ribbon drivers
has resulted in a meaningful reduction in costs, and we expect that it will
enable our products to be more competitively priced.

         Our sources of supply of other component sub-parts are all
competitively priced and we have a sufficient number of other sources of supply
available to us should the need arise for additional components. If a
termination of existing relationship with any current supplier occurs we do not
expect to have any difficulty in replacing that source. We presently purchase
most of the woofers used in our systems from a non-affiliated Canadian company
that produces them according to our specifications.

SALES AND MARKETING

         Domestic. We are no longer engaged in the installation of speaker
systems but are solely involved with the design, manufacture and distributor
sale of our loudspeaker product lines. In addition to advertising in trade
journals and attending industry conventions for promotion and sale of our
products, we are in the process of establishing a network of distributors to
cover the territorial United States. Currently, we have approximately 100
dealers for our Professional line, 6 distributors for our Professional and
Commercial lines, 20 dealers for our Home Theatre line, 2 domestic and 6
international distributors for our Home Theatre line, and 100 dealers for our


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Commercial line. These outlets sell our products in approximately three-quarters
of the United States and six foreign countries. Our agreement with our dealers
requires them to use their best efforts to promote and advertise our products,
maintain a minimum inventory of loudspeaker systems and produce a minimum of
annual sales. The agreement requires that we are to design products with the
highest-quality standards and provide suggested user prices to dealers. The
dealer agreement may be terminated without cause by either party on 30 days
notice.

         We train the sales representatives to enable them to deal more easily
with customer questions. As manufacturers, we are always available to respond to
inquiries of customers and potential customers, if and when required. Although
we are small in comparison to the industry leaders, we are seeking to become
established in a niche market consisting of commercial and residential customers
who are more interested in a truer reproduction of sound than in a brand name.

         In June 1999 we ceased selling our loudspeaker systems directly to
end-users. Up to that time, we sold only the Professional Contractor Loudspeaker
Systems to end-user customers, primarily churches, schools, nightclubs and
similar establishments. These systems contained ribbon drivers manufactured by
others. From June 1999 through June 2000, we converted to a manufacturing
company and developed more products. These additional products consisted of the
Commercial line of Universal Soldier Loudspeaker systems and Home Theatre
speaker systems. In 2002, we sold 300 units of the Universal Soldier systems, a
total of 325 units of the Home Theatre Systems, and 400 units of our
Professional Contractor systems.

         We will continue to design and manufacture the same products as
previously sold to end-users for sale through our dealer network. The Universal
Soldier and Home Theatre lines that we manufacture contain our new technology
ribbon driver model PRD 500. The Professional Contractor Loudspeaker product
line contains our new technology ribbon driver model PRD 1000.

         International. We are also engaged in marketing and promotion
internationally. Our international business involves a number of risks,
including:

         o        foreign currency exchange fluctuations;
         o        political and economic instability;
         o        difficulty in managing distributors or sales representatives;
         o        tariffs and other trade barriers; and
         o        complex foreign laws and treaties including employment laws.

         Because our sales are in US currency, foreign currency exchange
fluctuations could materially affect us negatively. A decrease in the value of
foreign currencies as they relate to the U.S. dollar could make the pricing of
our products more expensive than products of our foreign competitors which are
priced in foreign currencies. Because of the fluctuating exchange rates and our
involvement with a number of currencies, we are unable to predict future
operating results.

         In January 1999, the new "Euro" currency was introduced in European
countries that are part of the European Monetary Union, or EMU. During 2002, all
EMU countries replaced their national currencies with the Euro. Because it is
too early to determine the effect the Euro will have on the marketplace, we
cannot determine the effect this may have on our business.

                                       6
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         In the future we expect to make significant investments in our
operations, particularly to support technological developments and sales
activities. As a result, operating expenses are expected to continue to
increase. As we develop and introduce new products and expand into new markets
such as international, direct and OEM markets, we intend to make such
investments on a continuing basis, primarily from revenues generated from
operations and from funds raised from sales of our stock. If our net sales do
not increase along with capital requirements or other investments, we are likely
to continue to incur net losses and our financial condition could be materially
and adversely affected. Since 1998 we have not been profitable due mostly to the
shift in our operating focus, and we cannot be certain that we will achieve or
sustain profitability in the future.

COMPETITION

         Our main competitors are JBL Professional, a division of Harmon
International, Inc.; Eastern Acoustics Works, Inc.; Meyer Sound, Inc.;
Turbosound, Inc.; and Renkus-Heinz, Inc. All of these companies have
substantially greater assets and financial resources than we do. Most of the
competitors compete in both the higher priced, more sophisticated line of
loudspeaker systems, which are similar to our Professional Contractor Speaker
Systems, and lower priced, less sophisticated line of loudspeaker systems,
similar to our Universal Soldier Speaker Systems. Meyer Sound and Renkus-Heinz
are engaged only in the more expensive speaker systems. All of these competitors
presently use the compression driver component in their sound systems. Although
our ribbon driver products are new, the nature of the market for our loudspeaker
products is highly competitive and sensitive to the introduction of new
products. As a result, we may experience increasing competition in the future.

         Our success will depend, in part, upon our ability to increase sales in
our targeted markets. We may not be able to compete successfully with our
competitors and the pressures from competitors may have a material adverse
effect on us. Our success will depend in large part upon our ability to increase
our share of our target market and to sell additional products to existing
customers. However, future competition could result in price reductions, reduced
margins or decreased sales of our products.

         We currently compete primarily with the internal design efforts of
larger and more established companies that have larger technical staffs, more
established and larger marketing and sales organizations and significantly
greater financial resources than we have. Such competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements. They are able to devote greater resources to the development, sale
and promotion of their products than we are able to devote. They may develop
products that are superior in certain respects to our products or may develop
products that achieve greater market acceptance.

PROPRIETARY TECHNOLOGY

         We are the owners of the proprietary ribbon driver technology for our
models PRD 500 and PRD 1000. We have no patents on this technology. However, we
have filed a Disclosure Statement with the US Patent and Trademark Office as
evidence of our conception of the invention, and we filed a patent application
in September 2002. Although we have filed for a patent we cannot be certain that
a patent will be granted, or that it will give us an advantage over our
competitors.

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         The laws of some foreign countries do not protect or enforce
proprietary rights to the same extent as do the laws of the United States. Also,
our domestic and international competitors may develop other technology which
produces results similar to our technology. We expect that some loudspeaker
products may be subject to patent infringement claims as the number of products
and competitors in our industry grows. As a result, third parties may assert
patent infringement claims against us in the future, and such claims may not be
resolved in our favor. Any such claims, with or without merit, could be
time-consuming and may result in costly litigation. Such claims may also require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if they become necessary, may not be available on terms that are
favorable to us, if at all. In addition, we may be forced to commence litigation
in the future to protect our trade secrets or proprietary rights, or to
determine the validity and extent of the proprietary rights of others. Such
possible litigation could result in substantial costs and diversion of our
energy and resources.

EMPLOYEES

         We have a total of 11 employees, one of which is executive, two are
administrative, one is a marketing director, and seven are technical. In the
past, we have employed temporary and part-time employees to meet production
obligations and fill orders. There is presently no labor union contract between
any union and us. We do not anticipate our employees will seek to form or join a
union for the foreseeable future.

BUSINESS STRATEGY

         As a result of our experience, we have determined that maintaining
consistent contact with distributors, customers and others in the industry and
continued marketing through conventions and trade magazines will produce
additional business. We have determined that marketing our products by the
distributor/sales representative network is best suited to generate revenue. Our
distributors are expected to be our primary source of business in coming years.
In addition, the sales representatives will enable us to monitor the
effectiveness of our marketing program. Now that we have the ability to
manufacture our own ribbon drivers, we will derive savings from the cost of
purchasing compression drivers and ribbon drivers from third parties. Both the
cost savings and the quality of the lower distortion, as demonstrated by our Tef
20 analysis device, are expected to enable us to establish a place in the home,
commercial and professional loudspeaker markets.

         We have recently re-focused our business on the development and
application of our ribbon driver technology. This new business may not be
successful and our future operating performance may not bring about the results
that we are seeking. Our operating results for the future periods are subject to
all of the risks and uncertainties which are inherent in the establishment of
new business enterprises. Our future operating results will depend upon:

         o        market acceptance of our ribbon driver technology;
         o        our success in establishing and expanding the distribution
                  network nationwide and internationally;
         o        our success in establishing ribbon driver products as a retail
                  product line;
         o        our success in attracting a strategic partner;
         o        availability of capital;
         o        our success in attracting and retaining motivated and
                  qualified personnel, particularly in the technical areas; and
         o        our marketing of new products and ribbon driver technology
                  applications.

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         Our initial market concentration has been in the area of church
construction and cinema theatre construction. The larger speakers we currently
manufacture have been specifically designed for use in the church and cinema
markets.

         We intend to continue advertising in trade journals and attending
industry conventions to maintain our image as a competitor in the loudspeaker
industry in the U.S. and internationally. We are seeking to derive profits and
competitiveness by sales through the dealer network of our product line using
our new, less costly, ribbon driver manufactured by us, beginning in 2001.
However, we cannot assure investors or predict profits from distributor sales or
any other business activity.

         At the appropriate time, we intend to investigate possible strategic
alliances with key industry participants to strengthen our image, our product
components and our distribution pattern. We cannot be certain that a future
alliance opportunity will present itself; or, if an opportunity is presented,
that it will result in a profitable working relationship. It is likely that in
some future financial quarter or quarters, our operating results will be below
the expectations of securities analysts and investors. If a shortfall in revenue
occurs, the market price for our common stock may decline significantly. The
factors that may cause our quarterly operating results to fall short of
expectations include:

         o        our ability to develop and market our new ribbon driver
                  loudspeaker products in a timely manner;
         o        the size and timing of customer orders;
         o        seasonality of sales;
         o        availability of capital;
         o        the degree and rate of growth of the markets in which we
                  compete and the accompanying demand for our loudspeaker
                  products;
         o        our suppliers' ability to perform under their contracts with
                  us.

         Many of these factors are beyond our control. For these reasons, you
should not rely on period-to-period comparisons of our financial results to
forecast our future performance.

RISK FACTORS

         An investment in our common stock involves various risks, including
those described in the risk factors below. You should carefully consider these
risk factors, together with all of the other information included in this
report, before you decide to invest in our common stock. If any of the following
risks, or any other risks not described below, develop into actual events, then
our business, financial condition, results of operations, or prospects could be
materially adversely affected, the market price of our common stock could
decline further and you could lose all or part of your investment.

We Have a History of Losses and May Not Be Profitable in the Future if We Do Not
Achieve Sufficient Revenue to Absorb Recent and Planned Expenditures.

         We have experienced significant operating losses since investing in the
development of ribbon driver technology in 1998 and, through December 31, 2002,
have an accumulated retained deficit of approximately $5,065,782. If we do not
achieve continued revenue growth sufficient to absorb our recent and planned


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expenditures, we could experience additional losses in future periods. These
losses or fluctuations in our operating results could cause the market value of
our common stock to decline.

We Will Depend On Additional Capital.

         Our ability to implement our strategy and expand our operations largely
depends on our access to capital. To implement our long-term strategy, we plan
to make ongoing expenditures for the expansion and improvement of our product
line and the promotion of our products. To date, we have financed our operations
primarily through sales of equity and the issuance of notes. Repayment of most
of these notes was required in 2002; however the notes remain outstanding, as
they are payable to existing shareholders that are not making a demand on the
notes. We expect that these shareholders will continue to permit these notes to
remain outstanding, but they have the right to demand full payment at any time
and they may do so. As a result, we will need to issue additional equity or
other securities to obtain the financing required to continue our operations and
make any required repayments of our notes. However, additional capital may not
be available on terms acceptable to us. Our failure to obtain sufficient
additional capital could curtail or alter our growth strategy or delay needed
capital expenditures.

We Have a Working Capital Deficit and a Critical Need for Cash to Conduct Our
Operations and Maintain Our Viability as a Going Concern.

         As of December 31, 2002, we had $437,773 of cash and other current
assets and $1,026,259 of current liabilities. This results in a working capital
deficit of $588,486. We have increased sales of our speaker systems in each year
since their introduction, which supply us with cash and accounts receivable.
Over time, we expect increased sales to provide for our cash needs.

Our Dependence upon Third-Party Dealers for Sales Makes Us Vulnerable to the
Efforts of Others Which Are Beyond our Control.

         Our distributors may not continue their current relationships with us
and they may give higher priority to the sale of our competitors' products. In
addition, effective distributors must devote significant technical, marketing
and sales resources to an often lengthy sales cycle. Our current and future
distributors may not devote sufficient resources to market our products
effectively and economic or industry conditions may adversely affect their
ability to market or sell for us. A reduction in sales efforts or a
discontinuation of distribution of our products by any distributor could lead to
reduced sales and loss of profits.

We May Not Gain Market Acceptance of Our Ribbon Driver Technology.

         We believe that revenues from our ribbon driver product line will
account for a material portion of our revenue for the foreseeable future. Our
future financial performance will depend on the market acceptance of our ribbon
driver technology and products. The market for distortion-free sound systems is
sustained by ongoing technological developments, frequent new product
announcements and introductions, evolving industry standards and changing
customer requirements. To date, we have had limited sales of products containing
our new technology ribbon drivers. If our ribbon driver technology and product
line do not gain sufficient positive market acceptance, we may not achieve
anticipated revenue, profits or continued viability.

                                       10
<PAGE>

In the Loudspeaker Market, We Are Subject to Intense Competition.

         Although the market for our ribbon driver loudspeaker products is
relatively new and emerging, the markets for our products are extremely
competitive and we expect such competition to increase. The market for sound
enhancement products in general is intensely competitive and sensitive to new
product introductions or enhancements and marketing efforts by our competitors.
We expect to experience increasing levels of competition in the future. Although
we have attempted to design our loudspeaker systems to compete favorably with
competitive products, we are unable to assure investors that we can establish
and maintain our competitive position against current or potential competitors.
Aggressive competition could cause us to have sales and profitability below
expectations.

If We Are Unable to Hire or Retain Qualified and Skilled Personnel As Necessary,
We May Not Be Able to Develop New Products or Successfully Manage Our Business.

         We believe our success will depend in large part upon our ability to
identify, attract and retain highly skilled managerial, engineering, sales and
marketing, finance and operations personnel. However, we may not be successful
in identifying, attracting and retaining such personnel. Our success also
depends to a great degree upon the continued contributions of our key
management, engineering, sales and marketing, finance and manufacturing
personnel, many of whom would be difficult to replace. In particular, we believe
that our future success depends on John Gott, Chief Executive Officer. We
presently do not maintain key person life insurance on Mr. Gott, and we
presently do not have an employment contract with him. If we experience the loss
of the services of any of our key personnel, we may be unable to identify,
attract or retain qualified personnel in the future. This could make it
difficult for us to manage our business and meet key objectives, or achieve or
sustain profits.

Our Recurring Losses and Dependence Upon Additional Financing Has Caused Our
Auditors to Issue a Statement Indicating Substantial Doubt as to Our Ability to
Continue as a Going Concern.

         The accountants' audit report on our financial statements for the year
ended December 31, 2002 included a statement that because of recurring losses
and our dependency on the sale of securities or obtaining additional debt
financing that there was a substantial doubt about our ability to continue as a
going concern. If we are unable to raise additional financing to cover operating
expenses and derive additional revenue from sales, we may no longer be a viable
business.

Since Our Common Stock is Thinly Traded, It Can Be Subject to Extreme Rises or
Declines In Price, and You May Not Be Able to Sell Your Shares At or Above the
Price You Paid.

         You may have difficulty reselling the shares of our common stock or our
warrants. You may not be able to resell your shares at or above the price you
paid, or at a fair market value. The stock markets have recently experienced
significant price and volume changes that are not related to the operating
performance of individual companies. These broad market changes may cause the
market price of our common stock to decline regardless of how well we perform as
a company.

Item 2.           Properties.
                  ----------

         We do not own any real property. We presently lease 19,500 square feet
of office and factory space at our current address from a nonaffiliated
landlord. The lease expires on August 31, 2003. The monthly rental is presently
$4,650. Our facility is divided into four equal 3,000 square foot sections that


                                       11
<PAGE>

are internally connected plus one 7,500 square foot adjoining section. One of
the 3,000 square foot sections is used for cabinet fabrication; another is used
for storage of completed cabinets and component storage; the third is used for
assembly and shipping; and the fourth is used for engineering and
administration. The 7,500 square foot section is used for inventory, packaging
and trade show materials storage. These facilities are suitable for producing in
excess of 300 finished speaker cabinets per week and for the production of up to
1,500 ribbon drivers per month. We believe our current manufacturing space is
sufficient for our projected operations. However, although we have no plans to
relocate our facility, should the occasion arise to do so, there is ample
factory and office space available at other locations in the region at similar
or competitive rates. In addition, we have three subcontractor cabinet shops
that add to our production capabilities. These companies are highly automated
and can supply up to a total of 2000 cabinets per week on scheduled notice.

Item 3.           Legal Proceedings.
                  -----------------

         On November 12, 2002, McQuerterGroup, Inc. filed a complaint against us
in the Superior Court of California, County of San Diego. The complaint alleged
breach of contract and sought the payment of $55,403.08, plus late fees,
interest, attorneys' fees, cost of the lawsuit and other relief as the court
deemed proper. On or about April 1, 2003, the parties entered into a settlement
agreement, pursuant to which we agreed to pay $60,000, by twelve $5,000 monthly
payments, part of which may be paid by delivery of up to $5,000 of our products.

         On December 24, 2002, 21-Day Capital Corporation filed a complaint
against us in the Superior Court of California, County of Los Angeles. 21-Day
Capital Corporation is the assignor of certain rights of Muir, Crane & Co. The
complaint alleges breach of contract and seeks the payment of $48,750.67, plus
interest, attorneys' fees and costs and other relief as the court deems proper.
We filed an answer on February 6, 2003 denying the allegations contained in the
complaint and asserting affirmative defenses.

         On April 4, 2002, Alfred V. Greco filed a complaint against us in the
Supreme Court of the State of New York, County of New York for unpaid legal
fees, seeking a total of $50,772, plus interest, costs and disbursements. In the
third quarter of 2002, the parties entered into a settlement agreement with
respect to this matter. The Company has not performed its obligations under such
settlement agreement. The parties are in discussions to amend the 2002
settlement agreement.

         The U.S. Internal Revenue Service ("IRS") is asserting that we owe
approximately $60,000 in payroll taxes for portions of the 2001 and 2002
calendar years, plus interest. Following negotiation with the IRS, we
tentatively agreed to pay such amount in twelve equal monthly payments, plus
interest, subject to completion and execution of a written agreement. We are
awaiting a draft of the written agreement from the IRS to formalize this
tentative, oral settlement.

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

         This item is inapplicable, as no matters were submitted to a vote of
our security holders during the quarter ended December 31, 2002.


                                       12
<PAGE>

                                     PART II

Item 5.           Market for Registrant's Common Equity and Related
                  -------------------------------------------------
                  Stockholder Matters.
                  --------------------

         Our common stock began trading on the Over-the-Counter Bulletin Board
under the symbol "SITI.OB" on June 27, 2001. The table below sets forth by
quarter, for each quarter in which our common stock has traded through December
31, 2002, the sales information for our common stock as reported on the
Over-the-Counter Bulletin Board. This information reflects inter-dealer prices,
without retail mark-up, mark-down or commission, and may not reflect actual
transactions.

                                                   Sale Prices
                                              -------------------------
                                                 High             Low
                                                 ----             ---
2001:
Second quarter                                  $1.30            $0.85
Third quarter                                    1.20             0.45
Fourth quarter                                   0.80             0.26

2002:
First quarter                                    0.84             0.36
Second quarter                                   0.84             0.20
Third quarter                                    0.59             0.23
Fourth quarter                                   0.51             0.16

         The number of record stockholders of our common stock on May 5, 2003
was 81, based on information furnished by our transfer agent. On May 19, 2003,
the closing price of our common stock on the Over-the-Counter Bulletin Board was
$0.24 per share. We urge you to obtain current market quotations for shares of
our common stock.

         We have not paid any cash dividends in our past two fiscal years and do
not anticipate paying cash dividends in the foreseeable future. We intend to
retain future earnings to fund the development and growth of our business. Any
payment of dividends in the future will be at the discretion of our board of
directors and will be dependent upon our earnings, financial condition, capital
requirements and other factors deemed relevant by our board of directors.

SALES OF UNREGISTERED SECURITIES DURING 2002

         In the fourth quarter of 2002, we sold 89,000 shares of our Preferred
Stock to accredited investors, most of which were existing shareholders, for
aggregate proceeds of $222,500. We did not use an underwriter in connection with
these sales. The sales were exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended.

         We also agreed to issue 800,000 shares of common stock and options to
purchase 500,000 shares of common stock under consulting agreements entered into
during the quarter ended December 31, 2002. The issuances were made in reliance
on Section 4(2) of the Securities Act of 1933, as amended.

                                       13
<PAGE>

         The net proceeds from these sales and issuances in the fourth quarter
of 2002 were used for working capital purposes. We did not use any registered
securities broker-dealers in connection with any sales of stock. All of the
foregoing uses of proceeds were direct or indirect payments to nonaffiliates.

Item 6.           Management's Discussion And Analysis of Financial Condition
                  -----------------------------------------------------------
                  And Results of Operations
                  -------------------------

OVERVIEW

         We manufacture premium-quality loudspeakers and sell them through our
dealer networks. The speakers use our proprietary ribbon-driver technology and
are generally recognized in the industry as high-quality systems. We sell a
Professional Line of loudspeakers, a Commercial Line of loudspeakers, and Home
Theatre systems.

         From the early 1970's through 1999 we derived substantially all of our
revenue from marketing, renting, selling and installing sound and lighting
systems. In June 1999, due to the favorable customer acceptance of our
custom-designed loudspeaker systems, we ceased these historical operations and
began focusing all efforts towards becoming a loudspeaker manufacturer and
selling to dealers and contractors on a wholesale basis. As a result, we have
been essentially in a development stage, as we are bringing to market products
that we introduced in 2000 and 2001 and designing and bringing to market
additional products.

         In June 2000, we asked dealers and distributors to sell our
Professional Line of products. These dealers and distributors started to form
our current network of approximately 50 dealers and 7 foreign distributors and
we began shipping to them. However, most of the Professional Line required new
ribbon drivers that we completed and implemented into the product line in early
2001.

         In September 2000, we introduced our Home Theatre systems, and sales
for those systems began immediately. From September through December 2000, we
added 20 new Home Theatre dealers in the US and began marketing efforts to
establish distributors and dealers outside the US.

         In June 2001, we introduced a Commercial Line of loudspeakers that
utilize our PRD500 Ribbon Driver and, in September 2001, we finished the
development of our PRD1000 Ribbon Driver and began implementing it into our
Professional Line. Our PRD drivers, which we manufacture, upgraded the previous
drivers that we purchased from third-party manufacturers; and our cost is
approximately one-sixth of the price that we had been paying for the previous
drivers.

         SLS International, Inc. was formed on July 25, 2000 and had no previous
operations. On the same date, this corporation merged with Sound and Lighting
Specialist Inc., its sole shareholder, and SLS International, Inc. was the
surviving corporation. All of the financial information reported for periods
prior to the merger are the results of operations of Sound and Lighting
Specialist, Inc. All of the operating activity reported for periods after the
merger are the results of operations of SLS International, Inc. The information
in this section should be read together with the financial statements, the
accompanying notes to the financial statements and other sections included in
this report.

RESULTS OF OPERATIONS

         Year ended December 31, 2002 as compared to the year ended December 31,
2001. For the year ended December 31, 2002, revenue increased to $790,582 from
$353,797 in 2001, as a result of the further roll-out of our product line and
customer acceptance of our products. Gross profit percentage increased to 32% in


                                       14
<PAGE>

2002 compared to 19% in 2001, primarily as a result of our conversion to
in-house manufacturing of our ribbon drivers from our previous outsourcing of
such components. In 2002, despite the increased revenue and improved gross
profit percentage, we reported a net loss of $2,242,325 as compared to a net
loss of $1,040,174 in 2001. The greater net loss was primarily the result of
increased general and administrative expenses, as discussed below.

         General and administrative expenses for 2002 increased to $2,468,565
from $1,068,335 in 2001, primarily as a result of the write-off of $203,831 of
bad debt expense (compared to $4,000 in 2001) and $1,074,229 of non-cash
expenses amortized in 2002 reflecting a portion of the fair value of stock and
options issued under consulting agreements entered into during 2001 and 2002. A
total of $1,599,213 in expenses were accrued under these consulting agreements,
and the unamortized portion ($524,984) of such expenses will be amortized in
future periods. Other factors causing the increase in general and administrative
expenses include a new employee handling our development of a transducer, a new
controller for our financial operations, a new national sales manager, increased
trade show participation to promote our products, and cash expenses for
consultants targeted toward increased exposure and relations with top musical
artists. Also, during the 2002 third quarter, we increased the size of our
leased facility, thereby increasing our monthly lease costs, which will increase
our capacity to satisfy the expected growth in revenue. Partially offsetting
these increases was the elimination of legal, accounting, consulting and other
costs incurred as a result of our 2001 public offering.

         Interest expense decreased to $33,306 in 2002 as compared to $46,011 in
2001, due to decreased borrowings.

         Year ended December 31, 2001 as compared to the year ended December 31,
2000. For the year ended December 31, 2001, revenue increased to $353,797 from
$163,350 in 2000, since 2001 was our first full year of sales of several
products following a partial year in 2000, and 2001 was the initial year for
sales of other products. In addition, sales of all products have increased
steadily since their introduction. In 2001, despite the increased revenue, we
reported a net loss of $1,040,174 as compared to a net loss of $781,710 in 2000.
The greater net loss was the result of increased general and administrative
expenses and to a lesser extent increased interest expense.

         General and administrative expense for the year ended December 31, 2001
increased to $1,068,335 from $813,571 in 2000, primarily as a result of a new
employee handling our development of a transducer, a new controller for our
financial operations, increased trade show participation to promote our
products, and the additional legal, accounting, consulting and other costs
incurred as a result of our 2001 public offering.

         Interest expense increased to $46,011 in 2001 as compared to $27,126 in
fiscal 2000, due to increased borrowings.

FINANCIAL CONDITION

         On December 31, 2002, our current liabilities exceeded current assets
by $588,486 compared to $296,734 on December 31, 2001. Total liabilities
exceeded net assets on December 31, 2002 by $562,262, as compared to $262,166 on
December 31, 2001. The increased working capital deficit was due primarily to
increases in accounts payable and other increased liabilities incurred from our
expanding operations, and decreases in cash. These factors were partially offset
by an increase in inventory and accounts receivable, funded in large part by the
sales of equity described below, as well as increases in accounts payable and
accrued liabilities. The changes in these items were the result of our net loss
from operations in 2002.

                                       15
<PAGE>

         We have experienced operating losses and negative cash flows from
operating activities in all recent years. The losses have been incurred due to
the development time and costs in bringing our products through engineering and
to the marketplace. In addition we have not paid notes payable and accounts
payable on due dates. The report of our accountants contains an explanatory
paragraph indicating that these factors raise substantial doubt about our
ability to continue as a going concern.

         In 2002 and 2001, we entered into consulting agreements that required
us to issue an aggregate of 2,495,000 shares of common stock, options to
purchase 100,000 shares of Class A preferred stock at an exercise price of $2.50
per share (each such share of preferred stock converts into 10 shares of common
stock), and options to purchase 500,000 shares of our common stock at $0.30 per
share. Total expenses under such agreements are $1,599,213, $1,074,229 of which
is reflected as amortized expenses in 2002 and the remainder of which is to be
amortized in subsequent periods over the respective terms of such agreements.
The difference between such total expenses and the amount amortized is reflected
as unamortized cost of stock issued for services on the balance sheet. We also
recorded $3,000 of cash and $27,000 of notes receivable received from such
consultants. The notes receivable were then written off as bad debt expense in
the quarter ended March 31, 2002.

         We are experiencing significant cash shortages; we had $4,240 in cash
on December 31, 2002. In order to continue operations, we have been dependent on
raising additional funds and have continued to sell preferred stock in the
beginning of 2003 to raise capital. In 2002 we privately sold preferred stock
for a total of $787,500, and through March 2003 we sold an additional $82,350.
In addition, we have outstanding warrants, which, upon exercise, provided
additional funding of $50,500 in 2002.

         Accounts receivable increased due to increased sales. However, the
increase would have been greater if we had not taken an allowance of $132,396.

         Notes payable increased to $414,720 on December 31, 2002. One note
totaling $2,087 is secured with equipment; and most of the remaining borrowings
are from individuals, are unsecured and matured in the first quarter of 2002.
However, these notes are payable to existing shareholders that are not making a
demand on the notes and will continue to accrue interest at 7% (10% in the case
of a note with a principal amount of $50,000) for an indefinite period of time.
We expect that these shareholders will continue to permit these notes to remain
outstanding, but they have the right to demand full payment at any time and they
may do so, which would have a material adverse effect on our financial
condition.

         There is intense competition in the speaker business with other
companies that are much larger and national in scope and have greater financial
resources than we have. We will require additional capital to continue our
growth in the wholesale speaker market. We are relying upon our ability to
obtain the necessary financing through the issuance of equity and upon our
relationships with our lenders to sustain our viability.

         In the past, we have been able to privately borrow money from
individuals by the issuance of notes and have sold our common stock to raise
capital. We intend to continue to do so as needed. However, we cannot be certain
that we will continue to be able to successfully obtain such financing. If we
fail to do so, we may be unable to continue as a viable business.

                                       16
<PAGE>

FORWARD-LOOKING INFORMATION

         This report, as well as our other reports filed with the SEC and our
press releases and other communications, contain forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. Forward-looking statements include all statements regarding our
expected financial position, results of operations, cash flows, dividends,
financing plans, strategy, budgets, capital and other expenditures, competitive
positions, growth opportunities, benefits from new technology, plans and
objectives of management, and markets for stock. These forward-looking
statements are based largely on our expectations and, like any other business,
are subject to a number of risks and uncertainties, many of which are beyond our
control. The risks include those stated in the "Risk Factors" section of this
report and economic, competitive and other factors affecting our operations,
markets, products and services, expansion strategies and other factors discussed
elsewhere in this report and the other documents we have filed with the
Securities and Exchange Commission. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information contained in this
report will in fact prove accurate, and our actual results may differ materially
from the forward-looking statements.

Item 7.           Consolidated Financial Statements and Supplementary Data.
                  ---------------------------------------------------------

See the financial supplement, beginning on page F-1.

         SLS INTERNATIONAL, INC.
         December 31, 2002
         -----------------

         Independent Auditor's Report                         F-2
         Balance Sheet                                        F-3
         Statement of Operations                              F-4
         Statement of Shareholders' Deficit                   F-5
         Statement of Cash Flows                              F-6
         Notes to Financial Statements                        F-7

Item 8.           Changes in and Disagreements with Accountants on Accounting
                  -----------------------------------------------------------
                  and Financial Disclosure.
                  -------------------------

         This item is inapplicable, as no such changes or disagreements have
occurred.

                                       17
<PAGE>

                                    PART III

Item 9.           Directors, Executive Officers, Promoters and Control Persons;
                  -------------------------------------------------------------
                  Compliance With Section 16(a) of the Exchange Act.
                  --------------------------------------------------

         The following table sets forth the names, ages and offices of the
Company's executive officers and directors:

Name                            Age             Office
John M. Gott                    52              President, CEO, CFO and Director
Michael L. Maples               54              Director
Robert H. Luke, Ph.D.           61              Director

         John M. Gott, our President, Chief Executive Officer, Chief Financial
Officer and Director, founded SLS in July 2000 in connection with the merger
between SLS and its predecessor. He was also founder and Chief Executive Officer
of Sound and Lighting Specialists, Inc., the predecessor of SLS International,
Inc., which was founded in October 1994. The predecessor engaged in the sale and
installation of sound and lighting systems. Mr. Gott acted as its President and
CEO since inception. In that capacity he spearheaded its growth with respect to
the sale and installation of sound and lighting systems across the world,
including in Carnegie Hall and Disney World in Tokyo. He was our primary
salesman through August 2001, when we hired another salesman. Mr. Gott has also
been instrumental in the conceptual design and marketing of most of our
products.

         Robert H. (Robin) Luke, Ph.D., has served as a Director since 2001. He
is Professor of Marketing and the Department Head of the Marketing Department at
Southwest Missouri State University. He has served as the first Department Head
of two Marketing Departments and directed the development of the MBA/MPA
programs for the University of the Virgin Islands. Dr. Luke has owned and
developed several businesses and regularly consults with major U.S. corporations
and institutions on marketing issues as a Senior Consultant with R.H. Luke &
Associates. He served the Academy of Marketing Science as a member of its Board
of Governors from 1992 to 1996 and as Vice President of Development, Vice
President and Vice President for Academic Affairs. He presently serves as a
Board Member of the Marketing Management Association. He has given or continues
to give service commitments to the Boards of Directors or Boards of Advisors of
the following organizations: Missouri Partnership for Outstanding Schools, Ozark
Greenways, Community Investment Alliance, Sports Directories International, the
Community Foundation of the Ozarks, Vision 20/20, the Downtown Springfield
Association, Ozarks Chapter of the Boy Scouts of America, A+ Advisory Board of
Glendale High School, and Lake County Youth Soccer.

         Dr. Luke has presented numerous papers at international, national and
regional marketing conferences. He serves on the Editorial Review Board of the
Journal of the Academy of Marketing Science, Journal of Marketing Management.
His writings have appeared in over 14 publications. He is the author of Business
Careers, an informational source on career opportunities for students,


                                       18
<PAGE>

counselors and advisors wishing to know more about business professions. At the
age of sixteen, under the name Robin Luke, he wrote and performed "Susie
Darling," a song that sold over two million copies from l958 to 1960 and became
number one around the world. His career as a recording artist spanned five years
and 14 records. He has received numerous awards, including "Distinguished Fellow
of the Academy of Marketing Science," the Marketing Management Association's
Firooz Hekmat Award in Consumer Behavior and their prestigious Marketing
Excellence Award, "best paper awards" from national and international
organizations, and the Gift of Time Award from his home city of Springfield
Missouri.

         Michael L. Maples has served as a Director since 2001. He is Chief
Financial Officer, Chief Administrative Officer, Vice President, Treasurer and
Corporate Secretary of TranSystems Corporation, an engineering, planning, and
consulting firm for the transportation industry. From 1994 to 1996, he was
Senior Financial Consultant for Glass & Associates, a consultant to businesses
in critical stages of development. From 1991 to 1994, Mr. Maples was Senior Vice
President and Controller for Franklin Savings Association, a publicly held group
of financial companies. From 1987 to 1991, he was Vice President of Finance &
Information Systems for McNally Wellman Company. From 1987 to 1989 he was
Treasurer and Corporate Secretary for McNally Pittsburgh, Inc., a group of
privately owned engineering and manufacturing companies supplying equipment,
systems, parts, and service to the international and domestic material handling
industry. From 1983 to 1987, he was Controller and Staff CPA for Gage & Tucker,
a multi-office law firm specializing in corporate representation. From 1976 to
1983, he was a Certified Public Accountant, first at Touche Ross & Co., then
with a regional firm, and finally as a sole practitioner.

         Each director is elected at the annual meeting of stockholders and each
director is elected to serve until his successor shall be elected and shall
qualify.

Section 16(a) Beneficial Ownership Reporting Compliance.
-------------------------------------------------------

         No reports have been required under Section 16(a) of the Securities
Exchange Act of 1934, as amended, because our common stock is not registered
under Section 12 of such act.

Item 10.          Executive Compensation.
                  -----------------------

         The following summarizes the principal compensation received by our
executive officers for the fiscal years indicated:
<TABLE>
<CAPTION>

Name &                                                                Other Annual
Principal Position          Year          Salary                Bonus           Compensation(a)
------------------          ----          ------                -----           ---------------
<S>                        <C>            <C>                      <C>             <C>
John M. Gott               2002           $50,440                  0               $3898
President                  2001           $50,440                  0               $2,614

Richard L. Norton(b)       2002           $35,384                  0               $2487
Vice President             2001           $40,000                  0               $6,547
</TABLE>

---------------
(a) All amounts are payments of medical insurance.
(b) Resigned on November 18, 2002.

         Each executive officer also serves as a director but receives no
compensation for acting as a director. We intend to pay future outside directors
who are not officers reasonable and customary fees for their services as
directors and for attendance, in person or by telephone, at each meeting of the
Board of Directors. We presently have no audit, compensation or nominating
committee.

                                       19
<PAGE>

Item 11.          Security Ownership of Certain Beneficial Owners and Management
                  --------------------------------------------------------------
                  and Related Stockholder Matters.
                  --------------------------------

         The following table sets forth certain information as of December 31,
2002 with respect to the beneficial ownership of our common stock by all persons
known by us to be beneficial owners of more than 5% of the outstanding shares of
our common stock, by directors who own common stock and all officers and
directors as a group:

Name & Address                         Shares                      Percent**
--------------                         ------                      --------
John M. Gott                        10,580,736***                   49.3%
1020 S. Pickwick
Springfield, MO 65804

Robert H. Luke                           6,500                         *
818 N. Forest
Springfield, MO 65802

Michael L. Maples                            0                         0%
12608 Howe Drive
Leawood, KS  66209

Richard L. Norton                    3,420,544                      15.9%
818 N. Forest
Springfield, MO 65802

Officers and Directors
as a Group (3 persons)              10,587,236                     49.3%

All such shares are owned directly by the named stockholders.

*Less than one percent

**Based upon a total of 21,453,528 shares outstanding on December 31, 2002;
1,222,000 shares were owed to buyers on such date, but had not been issued and
are not included in this total. ***Includes an option to purchase 3,420,544
shares owned by Richard L. Norton for $.05 per share, or if lower, 50% of the
5-day average trading price if the trading price is less than $.05 per share.

                                       20
<PAGE>

EQUITY COMPENSATION PLANS

On December 31, 2002, we had the following securities issued and available for
future issuance under equity compensation plans:
<TABLE>
<CAPTION>

------------------------------- -------------------------- ---------------------------- ------------------------------
                                           (a)                   (b)                           (c)
                                Number of securities to     Weighted-average exercise    Number of securities
                                be issued upon exercise     price of outstanding         remaining available for
                                of outstanding options,     options, warrants and        future issuance under equity
                                warrants and rights         rights                       compensation plans
                                                                                         (excluding securities
                                                                                         reflected in column (a))
------------------------------- -------------------------- ---------------------------- ------------------------------
<S>                             <C>                        <C>                          <C>
Equity compensation plans       500,000 shares of common   $0.30 per share              1,500,000 shares of common
approved by security holders    stock                                                   stock
------------------------------- -------------------------- ---------------------------- ------------------------------
Equity compensation plans not   100,000 shares of          $2.50 per share              0
approved by security holders    preferred stock*
------------------------------- -------------------------- ---------------------------- ------------------------------
Total                           500,000 shares of common   $0.30 per share of common    1,500,000 shares of common
                                stock and 100,000 shares   stock and $2.50 per share    stock
                                of preferred stock         of preferred stock
------------------------------- -------------------------- ---------------------------- ------------------------------
</TABLE>

*Represents options to purchase 100,000 shares of Class A preferred stock at an
exercise price of $2.50 per share (each such share of preferred stock converts
into 10 shares of common stock). These options were issued pursuant to an
agreement dated April 18, 2002 with Sam F. Hamra for consulting services.

Item 12.          Certain Relationships and Related Transactions.
                  -----------------------------------------------

         During 1999, certain receivables totaling $80,000 due to SLS from
Messrs. Gott and Norton were paid by them through an assignment of certain
equipment rental fees. The assigned fees had been due them individually for
equipment owned by them and leased to non-affiliated third parties. SLS also
received a commission from Messrs. Gott and Norton for handling the rentals and
income over a period of three years on their behalf. As of December 31, 2002, we
owed $23,193 to Mr. Gott and $0 to Mr. Norton.

                                     PART IV

Item 13.          Exhibits, Financial Statement Schedules, and Reports on
                  -------------------------------------------------------
                  Form 8-K.
                  ---------

         Financial Statements and Schedules. See the Index to Consolidated
Financial Statements and Financial Statement Schedule and Exhibits under Item 8.

         Reports on Form 8-K. We filed the following Reports on Form 8-K during
the fourth quarter of our 2002 fiscal year and to date in the following quarter.

                                       21
<PAGE>

         Exhibits. The exhibits to this Report are listed below. Other than
exhibits that are filed herewith, all exhibits listed below are incorporated
herein by reference. Exhibits indicated by an asterisk (*) are the management
contracts and compensatory plans, contracts or arrangements required to be filed
as exhibits to this Report.
<TABLE>
<CAPTION>

Number                     Exhibit                                                      Where Located
------------- --------------------------------------------------------------------- ----------------------------------
<S>           <C>                                                                   <C>
2.1           Plan of reorganization                                                Exhibit 2 to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
3.1           Articles of Incorporation                                             Exhibit 3(i) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
3.2           Amendment and Restatement of Certificate of Incorporation             Exhibit 3(ii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
3.3           By-Laws                                                               Exhibit 3(iii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
4.1           Specimen Certificate of Common Stock                                  Exhibit 4(i) to Amendment No. 1
                                                                                    to Registration Statement on
                                                                                    Form SB-2 filed December 1, 2000
------------- --------------------------------------------------------------------- ----------------------------------
4.2           Form of A Warrant                                                     Exhibit 4(ii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
4.3           Form of B Warrant                                                     Exhibit 4(iii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
10.1          Lease among Scenic Properties, Sound and Lighting Specialists,        Filed herewith
              Inc., John Gott and Richard Norton, dated September 1, 2002
------------- --------------------------------------------------------------------- ----------------------------------
10.2          Agreement dated February 24, 2000 between Igor Levitsky and Sound     Exhibit 10(i) to Amendment No. 1
              and Lighting Specialists, Inc.                                        to Registration Statement on
                                                                                    Form SB-2 filed December 1, 2000
------------- --------------------------------------------------------------------- ----------------------------------
10.3          Promissory Note to Igor Levitsky                                      Exhibit 10(ii) to Amendment
                                                                                    No. 1 to Registration Statement
                         on Form SB-2 filed December 1,
                                                                                    2000
------------- --------------------------------------------------------------------- ----------------------------------
10.4          Assignment of Technology Rights by Igor Levitsky dated November 9,    Exhibit 10(iii) to Amendment
              2000                                                                  No. 1 to Registration Statement
                                                                                    on Form SB-2 filed December 1,
                                                                                    2000
------------- --------------------------------------------------------------------- ----------------------------------
10.5          Form of Distribution Agreement                                        Exhibit 10(iv) to Amendment
                                                                                    No. 2 to Registration Statement
                         on Form SB-2 filed January 16,
                                                                                    2001
------------- --------------------------------------------------------------------- ----------------------------------
10.6          2000 Stock Purchase and Option Plan*                                  Exhibit 99(i) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
10.7          Form of Option*                                                       Exhibit 99(ii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
</TABLE>

                                       22
<PAGE>

<TABLE>
<CAPTION>

------------- --------------------------------------------------------------------- ----------------------------------
<S>           <C>                                                                   <C>
10.8          Letter Agreement, dated January 5, 2002 between SLS International,    Exhibit 10.1 to Amendment No. 1
              Inc. and Internet PR Group Inc.                                       to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.9          Share Purchase Agreement, dated January 22, 2002 between SLS          Exhibit 10.2 to Amendment No. 1
              International, Inc. and Herbie Herbert                                to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.10         Share Purchase Agreement, dated January 22, 2002 between SLS          Exhibit 10.3 to Amendment No. 1
              International, Inc. and Thomas Panos                                  to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.11         Share Purchase Agreement, dated August 8, 2001 between SLS            Exhibit 10.4 to Amendment No. 1
              International, Inc. and Les Garland                                   to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.12         Consulting Agreement, dated April 9, 2002, between SLS                Exhibit 10.1 to Amendment No. 1
              International, Inc. and The Equitable Group, LLC                      to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.13         Letter Agreement, dated April 2, 2002, between SLS International,     Exhibit 10.1 to Amendment No. 1
              Inc. and Muir Crane & Co.                                             to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.14         Letter Agreement, dated April 18, 2002, between SLS International,    Exhibit 10.1 to Amendment No. 1
              Inc. and Sam F. Hamra                                                 to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.15         Consulting Services Agreement, dated June 19, 2002, between SLS       Exhibit 10.1 to Amendment No. 1
              International, Inc. and Liquid Solutions Corp.                        to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.16         Letter Agreement, dated July 17, 2002, between SLS International,     Exhibit 10.1 to Amendment No. 1
              Inc. and Alfred V. Greco PLLC regarding settlement of Alfred V.       to Form 10-QSB for quarter ended
              Greco v. SLS International, Inc.                                      September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.17         Letter Agreement, dated July 17, 2002, between SLS International,     Exhibit 10.2 to Amendment No. 1
              Inc. and Alfred V. Greco PLLC regarding services to be provided by    to Form 10-QSB for quarter ended
              Alfred V. Greco PLLC                                                  September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.18         Consulting Agreement, dated August 15, 2002, between SLS              Exhibit 10.3 to Amendment No. 1
              International, Inc. and Atlantic Services Ltd.                        to Form 10-QSB for quarter ended
                                                                                    September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.19         Consulting Agreement, dated September 10, 2002, between SLS           Exhibit 10.4 to Amendment No. 1
              International, Inc. and Art Malone Jr.                                to Form 10-QSB for quarter ended
                                                                                    September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
</TABLE>
                                       23
<PAGE>

<TABLE>
<CAPTION>

------------- --------------------------------------------------------------------- ----------------------------------
<C>           <C>                                                                   <C>
10.20         Settlement Agreement and General Release dated April 1, 2003          Filed herewith
              between McQuerterGroup and SLS International, Inc.
------------- --------------------------------------------------------------------- ----------------------------------
10.21         Letter Agreement dated October 25, 2002 between SLS International,    Filed herewith
              Inc. and Patrick J. Armstrong
------------- --------------------------------------------------------------------- ----------------------------------
10.22         Letter Agreement dated October 25, 2002 between SLS International,    Filed herewith
              Inc. and Larry R. Stessel
------------- --------------------------------------------------------------------- ----------------------------------
10.23         Consulting Agreement, dated November 18, 2002 between SLS             Filed herewith
              International, Inc. and Atlantic Services Ltd.
------------- --------------------------------------------------------------------- ----------------------------------
10.24         Investor Relations and Financial Public Relations Consulting          Filed herewith
              Agreement, dated December 15, 2002 between SLS International, Inc.
              and Worldwide Financial Marketing, Inc.
------------- --------------------------------------------------------------------- ----------------------------------
21            List of Subsidiaries of SLS International, Inc.                       Filed herewith
------------- --------------------------------------------------------------------- ----------------------------------
23            Consent of Independent Certified Public Accountants                   Filed herewith
------------- --------------------------------------------------------------------- ----------------------------------
99.1          Form of Escrow Agreement with Metropolitan National Bank              Exhibit 99(iii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
99.2          Consent Order of Missouri Securities Division and SLS                 Exhibit 99(iv) to Post-Effective
              International, Inc.                                                   Amendment No. 1 filed May 30,
                                                                                    2001
------------- --------------------------------------------------------------------- ----------------------------------
99.3          Promotional Shares Lock-In Agreement                                  Exhibit 99(v) to Post-Effective
                                                                                    Amendment No. 1 filed May 30,
                                                                                    2001
------------- --------------------------------------------------------------------- ----------------------------------
99.4          Chief Executive Officer and Chief Financial Officer Certification     Filed herewith
              of Periodic Report
------------- --------------------------------------------------------------------- ----------------------------------
</TABLE>


Item 14.          Controls and Procedures.
                  ------------------------

         Our independent auditors recently completed their audit of our
financial statements for the year ended December 31, 2002. As a result of such
audit, we have been required to make restatements and reclassifications of our
unaudited financial statements filed for the quarters ended March 31, June 30
and September 30, 2002. Such restatements and reclassifications call into
question the effectiveness of our disclosure controls and procedures. We are
currently considering enhancements to our controls and procedures, particularly
with respect to the preparation of our quarterly unaudited financial statements.

         As of May 1, 2003, our Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2002 for purposes of
preparation of this Annual Report on Form 10-KSB. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to December 31, 2002, although
as stated above, enhancements are under consideration.



                                       24
<PAGE>



                                   SIGNATURES

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

                                                SLS INTERNATIONAL, INC.

                                                By  /s/ J. Gott
                                                  ---------------------
                                                    J. Gott
                                                    (President)
Date: May 21, 2003

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on May 21, 2003.

   Signature                                    Title
   ---------                                    -----

/s/ J. Gott                            President, Chief Executive Officer, Chief
-----------------------                Financial Officer and Director
                                       (Principal Executive Officer)

/s/ R. Luke, Ph.D.                     Director
-----------------------

/s/ M. Maples                          Director
-----------------------

/s/ J. Gott                            Chief Financial Officer
---------------------                  (Principal Financial Officer)
(J. Gott)


                                       25
<PAGE>


                                 CERTIFICATIONS

I, John Gott, certify that:

1.   I have reviewed this annual report on Form 10-KSB of SLS International,
     Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a -14 and 15d-14) for the registrant and have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent functions):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)   any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

/s/ John Gott
--------------------
John Gott, Chief Executive Officer and Chief Financial Officer
May 21, 2003

                                       26
<PAGE>



SLS INTERNATIONAL, INC. DECEMBER 31, 2002

Independent Auditor's Report...............................................F-2
Balance Sheet..............................................................F-3
Statement of Operations....................................................F-4
Statement of Shareholders' Deficit.........................................F-5
Statement of Cash Flows....................................................F-6
Notes to Financial Statements..............................................F-7


                                      F-1

<PAGE>




               Report of Independent Certified Public Accountants


Stockholders and Directors
SLS International, Inc.

We have audited the accompanying balance sheet of SLS International, Inc. as of
December 31, 2002 and 2001 and the related statements of operations,
shareholders' deficit, and cash flows for each of the years in the three year
period ended December 31, 2002. These financial statements are the
responsibility of the management of the Company. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SLS International, Inc. as of
December 31, 2002 and 2001 and the results of their operations and their cash
flows for each of the three years ended December 31, 2002 in conformity with
generally accepted accounting principles in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and is dependent upon the continued sale of its securities or obtaining debt
financing for funds to meet its cash requirements. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with regard to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



Weaver & Martin, LLC
Kansas City, Missouri
April 23, 2003


                                      F-2

<PAGE>

SLS International, Inc.
Balance Sheet
<TABLE>
<CAPTION>

                                                                           December 31,
                                                                   ---------------------------
                                                                       2002            2001
                                                                   -----------     -----------
<S>                                                                <C>             <C>
Assets
Current assets:
      Cash                                                         $     4,240     $    48,390
      Accounts receivable, net of allowance of $132,396 and $0
        for December 31, 2002 and 2001                                 165,024          69,185
      Inventory                                                        261,573         250,998
      Prepaid expenses and other current assets                          6,936           2,081
                                                                   -----------     -----------
                   Total current assets                                437,773         370,654
                                                                   -----------     -----------

Fixed assets:
      Vehicles                                                          31,026          47,376
      Equipment                                                         55,083          50,731
      Leasehold improvements                                             3,376           3,376
                                                                   -----------     -----------
                                                                        89,485         101,483
Less accumulated depreciation                                           63,261          64,594
                                                                   -----------     -----------
                   Net fixed assets                                     26,224          36,889
                                                                   -----------     -----------
                                                                   $   463,997     $   407,543
                                                                   ===========     ===========

Liabilities and Shareholders' Deficit
Current liabilities:
      Current maturities of long-term debt                         $   412,633     $   357,633
      Current maturities of notes payable                                2,087          14,007
      Accounts payable                                                 417,449         196,833
      Due to shareholders                                               23,193          31,886
      Accrued liabilities                                              170,897          67,029
                                                                   -----------     -----------
                   Total current liabilities                         1,026,259         667,388
                                                                   -----------     -----------
Notes payable, less current maturities                                      --           2,321
                                                                   -----------     -----------

Commitments and contingencies:
Shareholders' deficit:
      Preferred stock not issued but owed to buyers, $.001 par,
         2,000,000 shares authorized; 315,000 shares and
         102,000 shares at December 31, 2002 and 2001                      315             102
      Discount on preferred stock                                     (233,294)       (166,694)
      Contributed capital - preferred                                1,852,183         446,298
      Common stock, $.001 par; 75,000,000 shares authorized;
        21,453,528 shares and 19,019,528 shares issued at
        December 31, 2002 and 2001                                      21,454          19,020
      Common stock not issued but owed to buyers; 1,222,000
        shares and 40,000 shares at December 31, 2002 and 2001           1,222              40
      Contributed capital - common                                   3,386,624       1,710,425
      Unamortized cost of stock issued for services                   (524,984)             --
      Retained deficit                                              (5,065,782)     (2,271,357)
                                                                   -----------     -----------
                   Total shareholders' deficit                        (562,262)       (262,166)
                                                                   -----------     -----------
                                                                   $   463,997     $   407,543
                                                                   ===========     ===========
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      F-3
<PAGE>


SLS International, Inc.
Statement Of Operations
<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                              ----------------------------------------------
                                                  2002             2001             2000
                                              ------------     ------------     ------------
<S>                                           <C>              <C>              <C>
Revenue                                       $    790,582     $    353,797     $    163,350

Cost of sales                                      537,243          286,924          106,535
                                              ------------     ------------     ------------

Gross profit                                       253,339           66,873           56,815

General and administrative expenses              2,468,565        1,068,335          813,571
                                              ------------     ------------     ------------

Loss  from  operations                          (2,215,226)      (1,001,462)        (756,756)

Other income (expense):
      Interest expense                             (33,306)         (46,011)         (27,126)
      Interest and miscellaneous, net                6,207            7,299            2,172
                                              ------------     ------------     ------------

                                                   (27,099)         (38,712)         (24,954)
                                              ------------     ------------     ------------

Loss before income tax                          (2,242,325)      (1,040,174)        (781,710)

Income tax provision                                    --               --               --
                                              ------------     ------------     ------------

Net loss                                        (2,242,325)      (1,040,174)        (781,710)
                                              ------------     ------------     ------------

Deemed dividend associated with beneficial
   conversion of preferred stock                  (552,100)         (24,706)              --
                                              ------------     ------------     ------------

Net loss availiable to common shareholders    $ (2,794,425)    $ (1,064,880)    $   (781,710)
                                              ============     ============     ============

Basic and diluted earnings per share          $      (0.14)    $      (0.06)    $      (0.06)
                                              ============     ============     ============

Weighted average shares outstanding             20,446,711       17,406,111       14,194,405
                                              ============     ============     ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                      F-4
<PAGE>

SLS International, Inc.
Statement Of Shareholders' Deficit
<TABLE>
<CAPTION>

                                                                   Preferred stock                           Common stock
                                              ------------------------------------------------------   -------------------------
                                                                         Discount on    Contributed
                                                 Shares       Amount      Preferred       Capital       Shares          Amount
                                              -----------    --------    -----------    -----------   -----------    -----------
<S>                                                          <C>            <C>            <C>            <C>           <C>
Balance, January 1, 2000                               --    $     --    $        --    $        --    14,368,653    $    14,369

Net loss for the year                                  --          --             --             --            --             --

Cancellation of treasury stock                         --          --             --             --      (960,000)          (960)

Sales of common stock                                  --          --             --             --       524,800            525

Conversion of notes payable                            --          --             --             --       233,075            233

Common stock issued for services                       --          --             --             --       105,000            105
                                              -----------    --------    -----------    -----------   -----------    -----------

Balance, December 31, 2000                             --          --             --             --    14,271,528         14,272
                                              ===========    ========    ===========    ===========   ===========    ===========

Net loss for the year                                  --          --             --             --            --             --

Sales of preferred stock                          102,000         102             --        254,898            --             --

Discount on preferred stock associated
    with beneficial conversion feature                 --          --       (191,400)       191,400            --             --

Amortization of discount on preferred stock            --          --         24,706             --            --             --

Sales of common stock                                  --          --             --             --     4,000,000          4,000
     less expense of sale                              --          --             --             --            --             --

Sales of common stock -
     warrants exercised                                --          --             --             --       788,000            748
                                              -----------    --------    -----------    -----------   -----------    -----------

Balance, December 31, 2001                        102,000         102       (166,694)       446,298    19,059,528         19,020
                                              ===========    ========    ===========    ===========   ===========    ===========

Net loss for the year                                  --          --             --             --            --             --

Sales of preferred stock                          315,000         315             --        787,185            --             --

Discount on preferred stock associated
    with beneficial conversion feature                 --          --       (618,700)       618,700            --             --

Amortization of discount on preferred stock            --          --        552,100             --            --             --

Stock issued from prior period sales                   --          --             --             --            --             40

Conversion of preferred stock to common          (102,000)       (102)            --             --     1,020,000             --

Sales of common stock                                  --          --             --             --       300,000            100

Common stock issued for services                       --          --             --             --     2,195,000          2,195

Options issued for services                            --          --             --             --            --             --

Services paid for on behalf of company                 --          --             --             --            --             --

Amortization of cost of common stock
   issued for services                                 --          --             --             --            --             --

Sales of common stock -
     warrants exercised                                --          --             --             --       101,000             99
                                              -----------    --------    -----------    -----------   -----------    -----------

Balance, December 31, 2002                        315,000    $    315    $  (233,294)   $ 1,852,183    22,675,528    $    21,454
                                              ===========    ========    ===========    ===========   ===========    ===========
[RESTUBBED]
<CAPTION>
                                                    Common stock
                                             --------------------------   Unamortized cost
                                               Amount       Contributed   of stock issued   Retained      Treasury
                                              Unissued        Capital      for services     Deficit        Stock        Total
                                             -----------    -----------    -----------    -----------    ----------   -----------
<S>                                             <C>            <C>            <C>            <C>            <C>          <C>
Balance, January 1, 2000                     $        --    $   338,131    $        --    $  (424,767)   $  (60,000)  $  (132,267)

Net loss for the year                                 --             --             --       (781,710)           --      (781,710)

Cancellation of treasury stock                        --        (59,040)            --             --        60,000            --

Sales of common stock                                 --         74,475             --             --            --        75,000

Conversion of notes payable                           --         33,067             --             --            --        33,300

Common stock issued for services                      --         14,895             --             --            --        15,000
                                             -----------    -----------    -----------    -----------    ----------   -----------

Balance, December 31, 2000                            --        401,528             --     (1,206,477)           --      (790,677)
                                             ===========    ===========    ===========    ===========    ==========   ===========

Net loss for the year                                 --             --             --     (1,040,174)           --    (1,040,174)

Sales of preferred stock                              --             --             --             --            --       255,000

Discount on preferred stock associated
    with beneficial conversion feature                --             --             --             --            --            --

Amortization of discount on preferred stock           --             --             --        (24,706)           --            --

Sales of common stock                                 --        996,000             --             --            --     1,000,000
     less expense of sale                             --        (80,315)            --             --            --       (80,315)

Sales of common stock -
     warrants exercised                               40        393,212             --             --            --       394,000
                                             -----------    -----------    -----------    -----------    ----------   -----------

Balance, December 31, 2001                            40      1,710,425             --     (2,271,357)           --      (262,166)
                                             ===========    ===========    ===========    ===========    ==========   ===========

Net loss for the year                                 --             --             --     (2,242,325)           --    (2,242,325)

Sales of preferred stock                              --             --             --             --            --       787,500

Discount on preferred stock associated
    with beneficial conversion feature                --             --             --             --            --            --

Amortization of discount on preferred stock           --             --             --       (552,100)           --            --

Stock issued from prior period sales                 (40)            --             --             --            --            --

Conversion of preferred stock to common            1,020           (918)            --             --            --            --

Sales of common stock                                200         29,700             --             --            --        30,000

Common stock issued for services                      --      1,071,755     (1,073,950)            --            --            --

Options issued for services                           --        426,164       (426,164)            --            --            --

Services paid for on behalf of company                --         99,099        (99,099)            --            --            --

Amortization of cost of common stock
   issued for services                                --             --      1,074,229             --            --     1,074,229

Sales of common stock -
     warrants exercised                                2         50,399             --             --            --        50,500
                                             -----------    -----------    -----------    -----------    ----------   -----------

Balance, December 31, 2002                   $     1,222    $ 3,386,624    $  (524,984)   $(5,065,782)   $       --   $  (562,262)
                                             ===========    ===========    ===========    ===========    ==========   ===========
</TABLE>



The accompanying notes are an integral part of these financial statements.


                                      F-5
<PAGE>

SLS International, Inc.
Statement Of Cash Flows
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                              -----------------------------------------
                                                                  2002           2001           2000
                                                              -----------    -----------    -----------
<S>                                                           <C>            <C>            <C>
Operating activities:
      Net loss                                                $(2,242,325)   $(1,040,174)   $  (781,710)
      Adjustments to reconcile net income to cash flows
        from operating activities:
          Depreciation                                             15,018         15,838         15,947
          Amortization of cost of stock issued for services     1,074,229             --             --
          Gain from sale of fixed asset                            (5,900)            --             --
      Change in assets and liabilities-
          Accounts receiveable                                    (95,839)       (53,237)        34,419
          Due from shareholder                                         --             --          3,681
          Inventory                                               (10,575)        17,564       (191,093)
          Refundable income tax                                        --             --         14,797
          Prepaid expenses and other current assets                (4,855)        80,329        (61,890)
          Accounts payable                                        220,616       (111,279)       111,056
          Due to shareholders                                      (8,693)         4,639         12,967
          Deferred revenue                                             --        (70,270)        70,270
          Accrued liabilities                                     103,868         33,981        (37,256)
                                                              -----------    -----------    -----------

          Cash used in operating activities                      (954,456)    (1,122,609)      (808,812)
                                                              -----------    -----------    -----------

Investing activities:
      Proceeds from sale of fixed assets                            5,900             --             --
      Additions to fixed assets                                    (4,353)       (14,324)       (13,160)
                                                              -----------    -----------    -----------

          Cash provided by (used in) investing activities           1,547        (14,324)       (13,160)
                                                              -----------    -----------    -----------

Financing activities:
      Sale of stock, net of expenses                              868,000      1,568,685         75,000
      Borrowing of notes payable                                   55,000        135,000        666,267
      Repayments of notes payable                                 (14,241)      (536,020)       (19,284)
                                                              -----------    -----------    -----------

          Cash provided by used in financing activities           908,759      1,167,665        721,983
                                                              -----------    -----------    -----------

Increase (decrease) in cash                                       (44,150)        30,732        (99,989)
Cash, beginning of year                                            48,390         17,658        117,647
                                                              -----------    -----------    -----------

Cash, end of year                                             $     4,240    $    48,390    $    17,658
                                                              ===========    ===========    ===========

Supplemental cash flow information:
      Interest paid                                           $     6,766    $    14,574    $     7,471
      Income taxes paid (refunded)                                     --             --             --

Noncash investing activities:
      Stock and options issued for services                   $ 1,599,213    $        --    $    15,000
      Conversion of notes payable                                  50,000             --         33,300
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                      F-6
<PAGE>


SLS International, Inc.
Notes to Financial Statements.


1.  Significant Accounting Policies

         Nature of Operations:
             Prior to June 1999, the Company's one business segment was
             designing, selling and installing sound and lighting systems in
             churches, schools, theatres, and clubs and developing a proprietary
             loudspeaker line called SLS Loudspeakers.

             In June 1999, the Company ceased marketing, selling, and installing
             sound and lighting systems directly and began focusing all efforts
             towards being a loudspeaker manufacturer only and selling to
             dealers and contractors.

         Inventories:
             Inventories are stated at the lower of cost (first-in, first-out
             method) or market. Inventory consists of finished goods, raw
             materials and parts. Included in inventory is $23,478 of finished
             goods consigned to sales representatives and dealers.

         Fixed Assets:
             Fixed assets are recorded at cost and depreciated over their
             estimated useful lives. Depreciation is provided on a straight-line
             basis. The lives used for items within each property classification
             range from 5 to 10 years.

             Maintenance and repairs are charged to expense as incurred.

             Depreciation expense was $15,018, $15,838, and $15,947 in the years
             ended December 31, 2002, 2001, and 2000.

         Concentration of Credit Risk:
             The Company's revenues are derived principally from
             uncollateralized sales to customers in the same industry;
             therefore, customers may be similarly affected by changes in
             economic and other conditions within the industry. There has not
             been any significant credit losses on such sales.

         Research and Development:
              Research and development costs relating to both present and future
              products are expensed when incurred and included in operating
              expenses. Research and development costs were $22,095 and $17,569
              for the years ended December 31, 2002 and 2001.

         Use of Estimates:
             The preparation of financial statements in conformity with
             generally accepted accounting principles requires management to
             make estimates and assumptions that affect the amounts reported in
             the financial statements and notes. Actual results could differ
             from those estimates, but management does not believe such
             differences will materially affect the Company's financial
             position, results of operations, or cash flows.

                                      F-7
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         Revenue Recognition:
             Revenue is recognized when the products are shipped to customers.
             Installation revenues are recognized when the projects (all less
             than one month) are completed.

             Deferred revenues represent deposits made to the Company by its
             customers according to designated credit terms. The revenues
             associated with these deposits will be recognized when shipments
             are made.

         Accounts receivable:
             Accounts receivable are carried on a gross basis, with no
             discounting, less the allowance for doubtful accounts. No
             allowance for doubtful accounts is recognized at the time the
             revenue, which generates the accounts receivable, is recognized.
             Management estimates the allowance for doubtful accounts based on
             existing economic conditions, the financial conditions of the
             customers, and the amount and the age of past due accounts.
             Receivables are considered past due if full payment is not
             received by the contractual due date. Past due accounts are
             generally written off against the allowance for doubtful accounts
             only after all collection attempts have been exhausted.

         Cash Equivalents:
             The Company's cash equivalents consist principally of any financial
             instruments with maturities of generally three months or less and
             cash investments. The investment policy limits the amount of credit
             exposure to any one financial institution.

         Long-Lived Assets:
             Long-lived assets are reviewed for impairment whenever events or
             changes in circumstances indicate that the carrying amount may not
             be recoverable. Impairment is measured by comparing the carrying
             value of the long-lived asset to the estimated undiscounted future
             cash flows expected to result from the use of the assets and their
             eventual disposition. The Company determined that as of December
             31, 2002, there had been no impairment in the carrying value of
             long-lived assets.

         Financial Instruments:
             The carrying value of the Company's cash and cash equivalents,
             accounts receivable, accounts payable and accrued expenses
             approximate fair value because of the short-term maturity of these
             instruments. Fair values are based on quoted market prices and
             assumptions concerning the amount and timing of estimated future
             cash flows and assumed discount rates reflecting varying degrees of
             perceived risk. Based upon borrowing rates currently available to
             the Company with similar terms, the carrying value of notes payable
             and long-term debt approximates fair value.

                                      F-8
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         Net Loss Per Share:
             The Company computes loss per share in accordance with SFAS No.
             128, Earnings Per Share. This standard requires dual presentation
             of basic and diluted earnings per share on the face of the income
             statement for all entities with complex capital structures and
             requires a reconciliation of the numerator and denominator of the
             diluted loss per share computation.

             The Company's potentially issuable shares of common stock pursuant
             to outstanding stock options and convertible preferred stock are
             excluded from the Company's diluted computation, as their effect
             would be anti-dilutive.

         Recent Accounting Pronouncements:
             In November 2002, the Financial Accountings Standards Board (FASB)
             issued FASB Interpretation No.45 ("FIN 45") "Guarantor's Accounting
             and Disclosure Requirements for Guarantees, Including Guarantees of
             Indebtedness of Others." FIN 45 requires that upon issuance of a
             guarantee, the guarantor must recognize a liability for the fair
             value of the obligation it assumes under that guarantee. The
             disclosure provisions of FIN 45 are effective for financial
             statements of interim or annual periods that end after December 15,
             2002. The provision for initial recognition and measurement are
             effective on a prospective basis for guarantees that are issued or
             modified after December 31, 2002, irrespective of a Guarantor's
             year end. The adoption of FIN 45 by the Company during the quarter
             ended March 31, 2003 will not have a material impact on its current
             financial position and results of operations.

             In December 2002, the FASB issued SFAS No. 148, "Accounting for
             Stock-Based Compensation, Transition and Disclosure, an Amendment
             of FAS No. 123." SFAS No. 148 provides additional transition
             guidance for those entities that elect to voluntarily adopt the
             accounting provisions of SFAS No. 123. SFAS No. 148 also requires
             that entities that continue to account for stock-based compensation
             awards using the intrinsic value method of APB No. 25 provide more
             prominent disclosures than currently required by SFAS 123,
             including disclosures in interim financial statements. The
             transition and annual disclosure provisions of SFAS No. 148 are
             effective for fiscal years ending after December 15, 2002. The
             Company will continue to account for employee stock-based
             compensation under APB No. 25 and related interpretations. The
             Company will adopt the annual disclosure requirements in its
             financial statements for the year ended December 31, 2003, and the
             interim disclosure requirements beginning in its financial
             statements for the quarter ended March 31, 2003.

         Stock-Based Compensation:
             The Company accounts for its stock and options issued for services
             by non-employees based on the market value of the stock at the date
             of the agreement and the market value of the options as determined
             by the Black-Scholes pricing model. The cost is amortized to
             expense over the life of the agreement to provide services. The


                                      F-9
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


             Company accounts for its stock option plan in accordance with the
             provisions of SFAS No. 123, "Accounting for Stock Based
             Compensation'. SFAS No. 123 permits entities to recognize as
             expense over the vesting period the fair value of all stock-based
             awards on the date of the grant. Alternatively, SFAS No. 123 also
             allows entities to apply the provisions of Accounting Principles
             Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
             Employees", and related interpretations and provide pro forma net
             income and pro forma earnings per share disclosures for employee
             stock option grants as if the fair-value-based method defined in
             SFAS No. 123 had been applied. The Company has elected to apply the
             provisions of APB No. 25 and when required provide the pro forma
             disclosure provisions of SFAS No. 123.

         Income Taxes:
             Amounts provided for income tax expense are based on income
             reported for financial statement purpose and do not necessarily
             represent amounts currently payable under tax laws. Deferred taxes,
             which arise principally from temporary differences between the
             period in which certain income and expense items are recognized for
             financial reporting purposes and the period in which they affect
             taxable income, are included in the amounts provided for income
             taxes. Under this method, the computation of deferred tax assets
             and liabilities give recognition to the enacted tax rates in effect
             in the year the differences are expected to affect taxable income.
             Valuation allowances are established when necessary to reduce
             deferred tax assets to amounts that the Company expects to realize.

         Reclassifications
             Certain amounts in the financial statements for the prior period
             have been reclassified to conform to the current period's
             presentation.

2.  Going Concern Matters
         The accompanying financial statements have been prepared on a going
         concern basis, which contemplates the realization of assets and the
         satisfaction of liabilities in the normal course of business. As shown
         in the financial statements during the years ended December 31, 2002,
         2001 and 2000, the Company incurred losses of $2,135,219, $1,040,174,
         and $781,710 respectively. The financial statements do not include any
         adjustments relating to the recoverability and classification of
         liabilities that might be necessary should the Company be unable to
         continue as a going concern. It is management's plan to finance its
         operations for the foreseeable future primarily with proceeds from
         capital contributed by shareholders and to explore other financing
         options in the investment community. At December 31, 2002, no formal
         agreements had been entered into although management is negotiating
         licensing agreements with entities whom have their own distributors
         that, if consummated, would generate operating revenues from the
         commercial sale of its loudspeakers directly to consumers. However,
         there can be no assurance that these sources will provide sufficient
         cash inflows to enable the Company to achieve its operational
         objectives.

                                      F-10
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


3.  Long Term Debt
         Long term debt consists of the following at December 31, 2002 and 2001:
<TABLE>
<CAPTION>
                                                                   December 31,
                                                                2002           2001
                                                              --------       --------
<S>                                                           <C>            <C>
         Note payable to individual, interest rate of
         10% uncollateralized, principal payable on
         demand. Interest paid monthly.                       $ 50,000       $     --

         Note payable to Individual, interest rate of
         7% uncollateralized, principal payable on
         demand. Interest paid monthly.                          5,000             --

         Notes payable to individuals, interest rate of
         7% uncollateralized, principal past due.
         Interest accrued.                                     357,633        357,633
                                                              ----------     --------
                                                               412,633        357,633
        Less current portion                                   412,633        357,633
                                                              --------       --------
        Long-term portion                                     $     --       $     --
                                                              ========       ========
</TABLE>

         All long term debt is either due on demand or past due as of December
         31, 2002. Interest expense accrued on long-term debt was $33,517 and
         $22,584 in the years ended December 31, 2002 and 2001.

4.  Commitments
         Rent expense for operating leases was approximately $56,400, $33,425
         and $31,500 for the years ended December 31, 2002, 2001 and 2000.
         Future minimum lease commitments under non-cancelable leases for the
         year ended December 31, 2003 is $37,200.

5.  Income Taxes
         The Company does not have an income tax provision in 2002, 2001 and
         2000. The Company has loss carryforwards of approximately $3,305,000
         expiring from 2011 to 2016.

         Deferred tax is comprised of the following:

         Non-current asset:            2002           2001           2000
                                   -----------    -----------    -----------
         Net operating loss        $ 1,123,700    $   763,800    $   415,000
         Valuation allowance        (1,123,700)      (763,800)      (415,000)
                                   -----------    -----------    -----------
         Total deferred tax, net            --             --             --
                                   ===========    ===========    ===========

                                      F-11
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         A percent reconciliation of the provision for income taxes to the
         statutory federal rate is as follows:

                                               2002     2001     2000
                                              -----    -----    -----
         Statutory federal income tax rate    (34.0%)  (34.0%)  (34.0%)
         Non deductible expense                17.0%     2.0%      .3%
         Change in valuation allowance         17.0%    32.0%    33.7%
                                              -----    -----    -----
         Effective tax rate                     0.0%     0.0%     0.0%
                                              =====    =====    =====

6.  Related Party Transactions
         The Company rents equipment owned by a shareholder for a rental fee. In
         2002, 2001 and 2000, the Company collected $1,740, $5,154 and $16,647
         in rent for the shareholder. Company revenue from the rental totaled
         approximately $174, $515 and $1,850 for the years ended December 31,
         2002, 2001 and 2000.

         On January 18, 2002, the Company borrowed $5,000 from a friend of the
         president of the Company. The note is a demand note and bears interest
         at 7%. Monthly interest payments totaling $322 have been paid in the
         year ended December 31, 2002. The note balance on December 31, 2002 was
         $5,000.

         On November 13, 2002, the Company borrowed $50,000 from a friend of the
         president of the Company. The note is a demand note and bears interest
         at 10%. Monthly interest payments totaling $444 have been paid in the
         year ended December 31, 2002. The note balance on December 31, 2002 was
         $50,000.

         On November 20, 2002 the Company sold a truck to an officer and
         shareholder for $5,900. The truck's cost was $16,351 and had been fully
         depreciated. The transaction is reflected in the December 31, 2002
         financial statements as a gain from sale of assets of $5,900.

         Amounts owed by or to shareholders to the Company are charged or
         credited interest.

7.  Major Customers and Suppliers
         In 2002, the company received approximately 29% of its revenue from
         four customers. The company purchased approximately 21% of the cost of
         sales from three vendors.

         In 2001, the company received approximately 40% of its revenue from
         four customers. The company purchased approximately 25% of the cost of
         sales from three vendors.

         In 2000, the Company received approximately 25% of its revenue from
         three customers. The Company purchased approximately 50% of the cost of
         sales from four vendors.


                                      F-12
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


8.  Stockholders' Equity
         In fiscal 2000, the Company sold 524,800 shares of common stock for
         $75,000. A stockholder exchanged a $33,300 demand note for 233,075
         shares of common stock. The Company issued 105,000 shares of common
         stock in 2000 in exchange for $15,000 in services.

         On July 25, 2000 the Treasury stock was retired.

         On August 10, 2000, there was a forward split of shares on a 12,800 to
         1 basis. The financial statements have retroactive adjustments for the
         forward stock split.

         In May, 2001, the Company sold 4,000,000 shares of common stock for
         $1,000,000 in a public offering. There were charges of $80,315 relating
         to the offering. These expenses have offset contributed capital.
         Included with the purchase of the shares was a Class A warrant and a
         Class B warrant. The Class A warrants expire on August 4, 2003 and are
         exercisable at a price of $0.50 per share. The Class B warrants have a
         term of 2 years and can be exercisable at a price of $3.00 per share.
         The warrants are detachable from the common stock but are not separable
         from each other until the Class A warrant is exercised.

         In May through December, 2001, 788,000 Class A warrants were exercised
         for 788,000 shares of common stock for a total of $394,000. 3,212,000
         Class A warrants are outstanding as of December 31, 2001. No Class B
         warrants have been exercised as of December 31, 2001.

         In 2002, 101,000 Class A warrants were exercised for 101,000 shares of
         common stock for a total of $50,500. As of December 31, 2002, 2,000
         shares had not been issued. 3,111,000 Class A warrants are outstanding
         as of December 31, 2002. No Class B warrants have been exercised as of
         December 31, 2002.

         In fiscal 2001, the Company sold 102,000 shares of preferred stock for
         $255,000. As of December 31, 2002, the preferred stock certificates had
         not been issued and are therefore stated in these financial statements
         as preferred stock not issued but owed to buyers. This preferred stock
         contained a beneficial conversion feature. The feature requires the
         holder to convert the preferred to 10 shares of common stock one year
         after buying the shares. A discount on preferred shares of $191,400
         relating to the beneficial conversion feature was recorded which will
         be amortized over a one year period beginning with the date the
         shareholders purchased their shares.

         In fiscal 2002, the Company sold 315,000 shares of preferred stock for
         $787,500. As of December 31, 2002, the preferred stock certificates had
         not been issued and are therefore stated in these financial statements
         as preferred stock not issued but owed to buyers. This preferred stock
         contained a beneficial conversion feature. The feature requires the
         holder to convert the preferred to 10 shares of common stock one year
         after buying the shares. A discount on preferred shares of $618,700
         relating to the beneficial conversion feature was recorded which will
         be amortized over a one year period beginning with the date the
         shareholders purchased their shares.

                                      F-13
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         As of December 31, 2002 and 2001, $552,100 and $24,706 has been
         amortized to retained earnings. At December 31, 2001, the unamortized
         discount on preferred shares was $166,694. At December 31, 2002, the
         unamortized discount on preferred shares was $233,294.

         In the fourth quarter of 2002, 102,000 shares of preferred stock were
         converted to 1,020,000 shares of common stock. As of December 31, 2002,
         the shares had not been issued and are therefore reflected in these
         financial statements as common stock not issued but owed to buyers. The
         shares were subsequently issued in February of 2003.

         In January of 2002, an agreement was signed with Office Radio Network
         for consulting services to be performed from January 5, 2002 to January
         5, 2003. As compensation for consulting services, the Company gave
         Office Radio Network $15,000 and issued 150,000 shares of common stock.
         The shares of common stock were issued on November 19, 2002. Using the
         market value on the date the agreement was signed, the shares were
         valued at $111,000 and recorded as a debit in the equity section of the
         balance sheet as unamortized cost of stock issued for services. The
         expense will be amortized over the one year period of the agreement.
         Consulting expense relating to this agreement was $109,612 for the year
         ended December 31, 2002. On December 31, 2002, there was $1,388
         remaining in unamortized cost of stock issued for services on the
         balance sheet.

         In January of 2002, three agreements were signed for consulting
         services to be performed. The agreements paid 300,000 shares to the
         consultants in exchange for $3,000, an executed note receivable for
         $27,000, and services to be rendered. 100,000 of the common shares were
         issued on November 19, 2002. The remaining 200,000 shares have not been
         issued as of December 31, 2002 and are therefore reflected in the
         financial statements as common stock not issued but owed to buyers.
         Using the market value on the date the agreements were signed, the
         shares were valued at $237,000. Value of the shares over consideration
         given is $207,000 and is recorded as a debit in the equity section of
         the balance sheet as unamortized cost of stock issued for services. The
         expense will be amortized over a one year period. Consulting expense
         relating to these agreements was $198,210 for the year ended December
         31, 2002. On December 31, 2002 there was $8,790 remaining in
         unamortized cost of stock issued for services on the balance sheet. A
         valuation allowance of $27,000 has been used to offset the resulting
         note receivable from the transaction and therefore $0 is reflected in
         the asset section of the balance sheet for the note receivables.

         In April of 2002, an agreement was signed with The Equitable Group, LLC
         for consulting services to be performed from March 26, 2002 to
         September 26, 2002. As compensation for consulting services, the


                                      F-14
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         Company agreed to issue 600,000 shares of common stock, of which
         100,000 were nonrefundable, to the consultant. The Company issued
         100,000 shares on April 9, 2002. Using the market value on the date the
         agreement was signed, the shares were valued at $51,000 and recorded as
         a debit in the equity section of the balance sheet as unamortized cost
         of stock given for services. On May 2, 2002, the Company terminated the
         agreement. Upon termination of the agreement all unamortized costs were
         amortized as consulting expense. Consulting expense relating to this
         agreement was $51,000 for the year ended December 31, 2002. On December
         31, 2002 there was $0 remaining in unamortized cost of stock issued for
         services on the balance sheet.

         In April of 2002, an agreement was signed with Muir, Crane, & Co. for
         consulting services to be performed April 2, 2002 to April 2, 2003. As
         compensation for consulting services the Company agreed to pay a
         retainer of $4,000 per month and issue 200,000 shares of common stock.
         100,000 shares were issued on April 9, 2002 and 100,000 shares were
         issued on July 18, 2002. Using the market value on the date the
         agreement was signed, the shares were valued at $95,000 and recorded as
         a debit in the equity section of the balance sheet as unamortized cost
         of stock issued for services. At December 31, 2002, the consulting
         agreement had been terminated and all costs were amortized. Consulting
         expense relating to this agreement was $95,000 for the year ended
         December 31, 2002. On December 31, 2002 there was $0 remaining in
         unamortized cost of stock issued for services.

         In April of 2002, an agreement was signed with Sam Hamra for consulting
         services to be performed April 18, 2002 to April 18, 2003. As
         compensation for consulting services the Company agreed to issue 70,000
         shares of common stock. 70,000 shares of common stock were issued on
         April 18, 2002. Using the market value on the date the agreement was
         signed, the shares were valued at $39,200 and recorded as a debit in
         the equity section of the balance sheet as unamortized cost of stock
         issued for services. As compensation, Mr. Hamra was also issued options
         to purchase 100,000 shares of preferred stock at a strike price of
         $2.50 per share. This preferred stock was convertible into 1,000,000
         shares of common stock after a period of one year. The options expire
         when the preferred stock offering closes. The closing date has been
         extended to July 31, 2003. Using the Black-Scholes pricing model, the
         options were valued at $311,222 and recorded as a debit in the equity
         section of the balance sheet as unamortized cost of stock issued for
         services. At December 31, 2002, the consulting agreement had been
         terminated and all costs were amortized. Consulting expense relating to
         this agreement was $350,517 for the year ended December 31, 2002. On
         December 31, 2002 there was $0 remaining in unamortized cost of stock
         issued for services.

         In June of 2002, an agreement was signed with Liquid Solutions Corp.
         for consulting services to be performed June 10, 2002 to September 10,
         2002. As compensation for consulting services the Company agreed to
         issue 500,000 shares of common stock. 500,000 shares of common stock
         were issued on June 19, 2002. Using the market value on the date the
         agreement was signed, the shares were valued at $155,000 and recorded


                                      F-15
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         as a debit in the equity section of the balance sheet as unamortized
         cost of stock issued for services. The expense was amortized over the
         three months of the agreement. Consulting expense relating to this
         agreement was $155,000 for the year ended December 31, 2002. On
         December 31, 2002 there was $0 remaining in unamortized cost of stock
         issued for services.

         In August of 2002, an agreement was signed with Atlantic Services,
         Ltd., a foreign corporation based in Costa Rica, for consulting
         services to be performed August 15, 2002 to August 15, 2003. As
         compensation for consulting services the Company agreed to issue
         125,000 shares of common stock. 125,000 shares of common stock were
         issued on August 15, 2002. Using the market value on the date the
         agreement was signed, the shares were valued at $43,750 and recorded as
         a debit in the equity section of the balance sheet as unamortized cost
         of stock issued for services. The expense will be amortized over the
         one year period of the agreement. Consulting expense relating to this
         agreement was $16,625 for the year ended December 31, 2002. On December
         31, 2002 there was $27,125 remaining in unamortized cost of stock
         issued for services.

         In September of 2002, an agreement was signed with Art Malone, Jr. for
         consulting services to be performed September 10, 2002 to March 10,
         2003. As compensation for consulting services the Company agreed to
         issue 250,000 shares of common stock upon signing of the agreement and
         another 250,000 shares upon the consummation or signing of a celebrity
         brought directly or indirectly by Mr. Malone as an endorser. 250,000
         shares of common stock were issued on September 17, 2002. As of
         December 31, 2002 no other shares have been issued in regards to this
         agreement. Using the market value on the date the agreement was signed,
         the shares were valued at $60,000 and recorded as a debit in the equity
         section of the balance sheet as unamortized cost of stock issued for
         services. The expense will be amortized over the six month period of
         the agreement. Consulting expense relating to this agreement was
         $37,200 for the year ended December 31, 2002. On December 31, 2002
         there was $22,800 remaining in unamortized cost of stock issued for
         services.

         In October of 2002, an agreement was signed with Patrick Armstrong of
         Titan Entertainment Group for consulting services to be performed
         November 5, 2002 to November 5, 2003. As compensation for consulting
         services the Company agreed to issue 100,000 shares of common stock and
         250,000 options for 250,000 shares of common stock. The options have a
         strike price of $.30 and expire ten years from date of issuance.
         100,000 shares of common stock were issued on November 5, 2002. Using
         the market value on the date the agreement was signed, the shares were
         valued at $39,000 and recorded as a debit in the equity section of the
         balance sheet as unamortized cost of stock issued for services. Using
         the Black-Scholes pricing model, the options were valued at $57,471 and
         recorded as a debit in the equity section of the balance sheet as
         unamortized cost of stock issued for services. All costs will be
         amortized over the one year period of the agreement. Consulting expense
         relating to this agreement was $17,010 for the year ended December 31,
         2002. On December 31, 2002 there was $79,461 remaining in unamortized
         cost of stock issued for services.

                                      F-16
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         In October of 2002, an agreement was signed with Larry Stessel of Titan
         Entertainment Group for consulting services to be performed November 5,
         2002 to November 5, 2003. As compensation for consulting services the
         Company agreed to issue 100,000 shares of common stock and 250,000
         options for 250,000 shares of common stock. The options have a strike
         price of $.30 and expire ten years from date of issuance. 100,000
         shares of common stock were issued on November 5, 2002. Using the
         market value on the date the agreement was signed, the shares were
         valued at $39,000 and recorded as a debit in the equity section of the
         balance sheet as unamortized cost of stock issued for services. Using
         the Black-Scholes pricing model, the options were valued at $57,471 and
         recorded as a debit in the equity section of the balance sheet as
         unamortized cost of stock issued for services. All costs will be
         amortized over the one year period of the agreement. Consulting expense
         relating to this agreement was $17,010 for the year ended December 31,
         2002. On December 31, 2002 there was $79,461 remaining in unamortized
         cost of stock issued for services.

         In December of 2002, an agreement was signed with Atlantic Services,
         Ltd., a foreign corporation based in Costa Rica, for consulting
         services to be performed December 2, 2002 to June 2, 2003. As
         compensation for consulting services the Company agreed to issue
         300,000 shares of common stock and the president of the Company agreed
         to issue 300,000 options to purchase 300,000 shares of common stock
         owned by him personally. The options have a strike price of $.05 and
         expire 30 days after the current lock-up period ends on the president's
         shares. 300,000 shares of common stock were issued on December 9, 2002.
         Using the market value on the date the agreement was signed, the shares
         were valued at $114,000 and recorded as a debit in the equity section
         of the balance sheet as unamortized cost of stock issued for services.
         Using the Black-Scholes pricing model, the options were valued at
         $99,099 and recorded as a credit to additional paid in capital - common
         stock and a debit in the equity section of the balance sheet as
         unamortized cost of stock issued for services. The cost will be
         amortized over the six month period of the agreement. Consulting
         expense relating to this agreement was $21,807 for the year ended
         December 31, 2002. On December 31, 2002 there was $191,292 remaining in
         unamortized cost of stock issued for services.

         In December 2002, an agreement was signed with Worldwide Financial
         Marketing, Inc. for consulting services to be performed December 15,
         2002 to December 15, 2003. As compensation for consulting services the
         Company agreed to issue 300,000 shares of common stock. 300,000 shares
         of common stock were issued on December 13, 2002. Using the market
         value of the date the agreement was signed, the shares were valued at
         $120,000 and recorded as a debit in the equity section of the balance
         sheet as unamortized cost of stock issued for services. The cost will
         be amortized over the one year period of the agreement. Consulting
         expense relating to this agreement was $5,333 for the year ended
         December 31, 2002. On December 31, 2002 there was $114,667 remaining in
         unamortized cost of stock issued for services.

                                      F-17
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


 9. Notes Payable
         Notes payable consists of the following at December 31, 2002 and 2001:

                                                                  December 31,
                                                                2002      2001
                                                              -------   -------

         Equipment note, payments in monthly
         installments of $1,751 beginning May 1999,
         continuing for 35 months. The final payment
         is due April 2002 and will include all unpaid
         principal. Interest is prime plus 1.5%
         (currently 6.25%)                                    $    --   $ 8,507

         Vehicle note, payments in monthly
         installments of $518 beginning June 1999,
         ending April 2003.  Interest at 8.75%
                                                                2,087     7,821
                                                              -------   -------
                                                                2,087    16,328
         Less current portion                                   2,087    14,007
                                                              -------   -------
         Long-term portion                                    $    --   $ 2,321
                                                              =======   =======

         The aggregate principal amount of notes payable maturing in the year
         ended December 31, 2003 is $2,087.

10. Unamortized Cost of Stock Issued for Services
         As detailed in Note 8, the Company issued or agreed to issue 2,495,000
         shares of common stock and granted 1,500,000 options for common stock
         as part of consulting agreements. The value of stock issued and options
         granted totaled $1,599,213 for the year ended December 31, 2002. This
         cost is recorded as a debit in the equity section of the balance sheet
         as unamortized cost of stock issued for services. The balance will be
         amortized into consulting expense over the lives of the various
         consulting agreements. For the year ended December 31, 2002, $1,074,229
         was amortized into consulting expense. Unamortized cost of stock issued
         for Services was $524,984 as of December 31, 2002, all of which will be
         amortized into consulting expense in the year ended December 31, 2003.

11. Stock Option Plan
         On July 1, 2000, the Board of Directors approved a stock option plan.
         The plan covers all eligible employees and is an incentive stock option
         plan. The number of shares that can be issued under the plan total
         2,000,000. There were no options issued in 2000 or 2001. In 2002, the
         Company granted 1,500,000 options for services as part of consulting
         agreements detailed in Note 8. The Company accounts for these grants


                                      F-18
<PAGE>
SLS International, Inc.
Notes to Financial Statements.


         under Accounting Principles Board Opinion No. 25 under which expense
         has been recognized for services. The following table summarizes the
         options granted:

              Dividend Yield                                                 0%
              Weighted Average Expected Stock Volatility                    29%
              Weighted Average Risk Free Interest Rate                    2.70%
              Expected Option Lives                        6 months to 10 years
              Value of Options Granted                                 $426,164


                   Options                          2002       2001       2000
                   -------                       ---------   --------   -------
         Outstanding at beginning of year               --   $     --   $    --

         Granted                                 1,500,000         --        --

         Exercised                                      --         --        --

         Expired                                        --         --        --
                                                 ---------   --------   -------


         Outstanding at end of year              1,500,000   $     --   $    --
                                                 =========   ========   =======

         The weighted average exercise price of the options is $0.27.

12. Subsequent Events
         In February of 2003, the Company signed a consulting agreement with Tom
         Puccio for a period of six months. On February 25, 2003, the Company
         issued 300,000 shares of common stock in fulfillment of this agreement.
         Using the market value on the date the agreement was signed, the shares
         were valued at $93,000.

         In February of 2003, 42,000 shares of preferred stock were converted
         into 420,000 shares of common stock.

         In February of 2003, 1,020,000 shares of common stock owed to buyers at
         December 31, 2002 were issued.

         In February and March of 2003, 32,940 shares of preferred stock have
         been sold for $82,350.

         On April 19, 2003, the board of directors approved and ratified all the
         consulting agreements detailed in Note 8.



                                      F-19
<PAGE>
                                 EXHIBIT INDEX
                                 -------------

<TABLE>
<CAPTION>

Number                     Exhibit                                                      Where Located
------------- --------------------------------------------------------------------- ----------------------------------
<S>           <C>                                                                   <C>
2.1           Plan of reorganization                                                Exhibit 2 to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
3.1           Articles of Incorporation                                             Exhibit 3(i) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
3.2           Amendment and Restatement of Certificate of Incorporation             Exhibit 3(ii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
3.3           By-Laws                                                               Exhibit 3(iii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
4.1           Specimen Certificate of Common Stock                                  Exhibit 4(i) to Amendment No. 1
                                                                                    to Registration Statement on
                                                                                    Form SB-2 filed December 1, 2000
------------- --------------------------------------------------------------------- ----------------------------------
4.2           Form of A Warrant                                                     Exhibit 4(ii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
4.3           Form of B Warrant                                                     Exhibit 4(iii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
10.1          Lease among Scenic Properties, Sound and Lighting Specialists,        Filed herewith
              Inc., John Gott and Richard Norton, dated September 1, 2002
------------- --------------------------------------------------------------------- ----------------------------------
10.2          Agreement dated February 24, 2000 between Igor Levitsky and Sound     Exhibit 10(i) to Amendment No. 1
              and Lighting Specialists, Inc.                                        to Registration Statement on
                                                                                    Form SB-2 filed December 1, 2000
------------- --------------------------------------------------------------------- ----------------------------------
10.3          Promissory Note to Igor Levitsky                                      Exhibit 10(ii) to Amendment
                                                                                    No. 1 to Registration Statement
                         on Form SB-2 filed December 1,
                                                                                    2000
------------- --------------------------------------------------------------------- ----------------------------------
10.4          Assignment of Technology Rights by Igor Levitsky dated November 9,    Exhibit 10(iii) to Amendment
              2000                                                                  No. 1 to Registration Statement
                                                                                    on Form SB-2 filed December 1,
                                                                                    2000
------------- --------------------------------------------------------------------- ----------------------------------
10.5          Form of Distribution Agreement                                        Exhibit 10(iv) to Amendment
                                                                                    No. 2 to Registration Statement
                         on Form SB-2 filed January 16,
                                                                                    2001
------------- --------------------------------------------------------------------- ----------------------------------
10.6          2000 Stock Purchase and Option Plan*                                  Exhibit 99(i) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
10.7          Form of Option*                                                       Exhibit 99(ii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

------------- --------------------------------------------------------------------- ----------------------------------
<S>           <C>                                                                   <C>
10.8          Letter Agreement, dated January 5, 2002 between SLS International,    Exhibit 10.1 to Amendment No. 1
              Inc. and Internet PR Group Inc.                                       to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.9          Share Purchase Agreement, dated January 22, 2002 between SLS          Exhibit 10.2 to Amendment No. 1
              International, Inc. and Herbie Herbert                                to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.10         Share Purchase Agreement, dated January 22, 2002 between SLS          Exhibit 10.3 to Amendment No. 1
              International, Inc. and Thomas Panos                                  to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.11         Share Purchase Agreement, dated August 8, 2001 between SLS            Exhibit 10.4 to Amendment No. 1
              International, Inc. and Les Garland                                   to Form 10-QSB for quarter ended
                                                                                    March 31, 2002, filed May 21,
                                                                                    2003
------------- --------------------------------------------------------------------- ----------------------------------
10.12         Consulting Agreement, dated April 9, 2002, between SLS                Exhibit 10.1 to Amendment No. 1
              International, Inc. and The Equitable Group, LLC                      to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.13         Letter Agreement, dated April 2, 2002, between SLS International,     Exhibit 10.1 to Amendment No. 1
              Inc. and Muir Crane & Co.                                             to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.14         Letter Agreement, dated April 18, 2002, between SLS International,    Exhibit 10.1 to Amendment No. 1
              Inc. and Sam F. Hamra                                                 to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.15         Consulting Services Agreement, dated June 19, 2002, between SLS       Exhibit 10.1 to Amendment No. 1
              International, Inc. and Liquid Solutions Corp.                        to Form 10-QSB for quarter ended
                                                                                    June 30, 2002, filed May 21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.16         Letter Agreement, dated July 17, 2002, between SLS International,     Exhibit 10.1 to Amendment No. 1
              Inc. and Alfred V. Greco PLLC regarding settlement of Alfred V.       to Form 10-QSB for quarter ended
              Greco v. SLS International, Inc.                                      September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.17         Letter Agreement, dated July 17, 2002, between SLS International,     Exhibit 10.2 to Amendment No. 1
              Inc. and Alfred V. Greco PLLC regarding services to be provided by    to Form 10-QSB for quarter ended
              Alfred V. Greco PLLC                                                  September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.18         Consulting Agreement, dated August 15, 2002, between SLS              Exhibit 10.3 to Amendment No. 1
              International, Inc. and Atlantic Services Ltd.                        to Form 10-QSB for quarter ended
                                                                                    September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
10.19         Consulting Agreement, dated September 10, 2002, between SLS           Exhibit 10.4 to Amendment No. 1
              International, Inc. and Art Malone Jr.                                to Form 10-QSB for quarter ended
                                                                                    September 30, 2002, filed May
                                                                                    21, 2003
------------- --------------------------------------------------------------------- ----------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

------------- --------------------------------------------------------------------- ----------------------------------
<C>           <C>                                                                   <C>
10.20         Settlement Agreement and General Release dated April 1, 2003          Filed herewith
              between McQuerterGroup and SLS International, Inc.
------------- --------------------------------------------------------------------- ----------------------------------
10.21         Letter Agreement dated October 25, 2002 between SLS International,    Filed herewith
              Inc. and Patrick J. Armstrong
------------- --------------------------------------------------------------------- ----------------------------------
10.22         Letter Agreement dated October 25, 2002 between SLS International,    Filed herewith
              Inc. and Larry R. Stessel
------------- --------------------------------------------------------------------- ----------------------------------
10.23         Consulting Agreement, dated November 18, 2002 between SLS             Filed herewith
              International, Inc. and Atlantic Services Ltd.
------------- --------------------------------------------------------------------- ----------------------------------
10.24         Investor Relations and Financial Public Relations Consulting          Filed herewith
              Agreement, dated December 15, 2002 between SLS International, Inc.
              and Worldwide Financial Marketing, Inc.
------------- --------------------------------------------------------------------- ----------------------------------
21            List of Subsidiaries of SLS International, Inc.                       Filed herewith
------------- --------------------------------------------------------------------- ----------------------------------
23            Consent of Independent Certified Public Accountants                   Filed herewith
------------- --------------------------------------------------------------------- ----------------------------------
99.1          Form of Escrow Agreement with Metropolitan National Bank              Exhibit 99(iii) to Registration
                                                                                    Statement on Form SB-2 filed
                                                                                    August 15, 2000
------------- --------------------------------------------------------------------- ----------------------------------
99.2          Consent Order of Missouri Securities Division and SLS                 Exhibit 99(iv) to Post-Effective
              International, Inc.                                                   Amendment No. 1 filed May 30,
                                                                                    2001
------------- --------------------------------------------------------------------- ----------------------------------
99.3          Promotional Shares Lock-In Agreement                                  Exhibit 99(v) to Post-Effective
                                                                                    Amendment No. 1 filed May 30,
                                                                                    2001
------------- --------------------------------------------------------------------- ----------------------------------
99.4          Chief Executive Officer and Chief Financial Officer Certification     Filed herewith
              of Periodic Report
------------- --------------------------------------------------------------------- ----------------------------------
</TABLE>