SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


(Mark One)

[X]      Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
         Exchange Act of 1934

                  For the Quarterly Period Ended June 30, 2004

                                       Or

[ ]      Transition Report Pursuant to Section 13 or 15(d) of The Securities
         Exchange Act of 1934

             For the Transition Period from _________ to ___________

                        Commission File Number: 333-43770

                             SLS INTERNATIONAL, INC.
                             -----------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

           Delaware                                      52-2258371
           --------                                      ----------
   (State of Incorporation)                   (IRS Employer Identification No.)

              3119 South Scenic
            Springfield, Missouri                          65807
            ---------------------                          -----
  (Address of Principal Executive Offices)              (Zip Code)

         Issuer's Telephone Number, Including Area Code: (417) 883-4549

                                       N/A
              ---------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)

      APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
                            THE PRECEDING FIVE YEARS

         Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.   N/A
     Yes  [ ] No  [ ]

         On August 1, 2004, 31,785,380 shares of SLS International, Inc. common
stock were outstanding.

         Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]

<PAGE>

                             SLS INTERNATIONAL, INC.

                                      INDEX


                          PART I. FINANCIAL INFORMATION

                                                                       Page No.

Item 1.  Financial Statements

         Condensed Balance Sheet                                          3
         Condensed Statements of Operations                               4
         Condensed Statement of Cash Flows                                6
         Notes to Financial Statements                                    7

Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                     14

Item 3.  Controls and Procedures                                          18

                           PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds                         20

Item 6.  Exhibits and Reports on Form 8-K                                 21

Signature                                                                 22

                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

SLS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
                                                                                  June 30,         December 31,
                                                                                    2004              2003
                                                                                ------------      ------------
                                                                                 (unaudited)       (audited)
<S>                                                                             <C>               <C>
Assets
Current assets:
      Cash                                                                      $  3,374,662      $  1,482,786
      Accounts receivable, less allowance for doubtful accounts of
        $45,000 for June 30, 2004 and December 31, 2003                              355,640           277,665
      Inventory                                                                    1,018,266           590,297
      Deposits - inventory                                                           220,457                --
      Deposits - Merger                                                              100,000                --
      Prepaid expenses and other current assets                                       19,349             6,850
                                                                                ------------      ------------
                    Total current assets                                           5,088,374         2,357,598
                                                                                ------------      ------------
Fixed assets:
      Vehicles                                                                        78,949            73,376
      Equipment                                                                      233,587           159,212
      Leasehold improvements                                                         240,105           175,621
                                                                                ------------      ------------
                                                                                     552,641           408,209
Less accumulated depreciation                                                        109,299            88,016
                                                                                ------------      ------------
                    Net fixed assets                                                 443,342           320,193
                                                                                ------------      ------------
                                                                                $  5,531,716      $  2,677,791
                                                                                ============      ============

Liabilities and Shareholders' Equity
Current liabilities:
      Current maturities of long-term debt and notes payable                    $     28,871      $     28,946
      Accounts payable                                                               256,157           357,287
      Accrued liabilities                                                             42,576            26,138
                                                                                ------------      ------------
                    Total current liabilities                                        327,604           412,371
                                                                                ------------      ------------
Notes payable, less current maturities                                                13,899            15,931
                                                                                ------------      ------------
Commitments and contingencies:
Shareholders' equity:
      Preferred stock, Series A, $.001 par, 2,000,000 shares authorized;
        1,495,533 issued as of June 30, 2004 and
        1,545,300 issued as of December 31, 2003                                       1,496             1,545
      Preferred stock, Series B, $.001 par, 1,000,000 shares
        authorized; 219,600 shares issued as of June 30, 2004
        and no shares issued as of December 31, 2003                                     219                --
      Preferred stock, Series B, not issued but owed to buyers;
        37,500 shares at June 30, 2004                                                    38                --
      Discount on preferred stock                                                 (1,285,341)       (1,886,576)
      Contributed capital - preferred                                             13,815,952         7,411,585
      Common stock, $.001 par; 75,000,000 shares authorized;
        29,333,780 shares and 28,230,180 shares issued at
        June 30, 2004 and December 31, 2003                                           29,335            28,231
      Common stock not issued but owed to buyers; no shares and
        183,000 shares at June 30, 2004 and December 31, 2003                             --               183
      Contributed capital - common                                                12,227,860         8,319,286
      Unamortized cost of stock issued for services                                 (641,196)         (781,204)
      Retained deficit                                                           (18,958,150)      (10,843,561)
                                                                                ------------      ------------
                    Total shareholders' equity                                     5,190,213         2,249,489
                                                                                ------------      ------------
                                                                                $  5,531,716      $  2,677,791
                                                                                ============      ============
</TABLE>

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

                                       3
<PAGE>

SLS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                                                      For The Six Months
                                                        Ended June 30,
                                                ------------------------------
                                                    2004              2003
                                                ------------      ------------
                                                         (unaudited)

Revenue                                         $    926,222      $    382,021

Cost of sales                                        481,182           155,561
                                                ------------      ------------

Gross profit                                         445,041           226,460

General and administrative expenses                5,868,928         1,108,535
                                                ------------      ------------

Loss  from  operations                            (5,423,887)         (882,075)

Other income (expense):
      Interest expense                                (1,019)          (14,578)
      Interest and miscellaneous, net                 19,703            40,938
                                                ------------      ------------

                                                      18,684            26,360
                                                ------------      ------------

Loss before income tax                            (5,405,203)         (855,715)

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

Net loss                                          (5,405,203)         (855,715)
                                                ------------      ------------

Deemed dividend associated with
   beneficial conversion of preferred stock       (2,709,385)         (212,558)
                                                ------------      ------------

Net loss availiable to common shareholders      $ (8,114,588)     $ (1,068,273)
                                                ============      ============


Basic and diluted earnings per share            $      (0.28)     $      (0.04)
                                                ============      ============

Weighted average shares outstanding               29,067,313        23,885,528
                                                ============      ============


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

                                       4
<PAGE>

SLS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                                                       For The Three Months
                                                          Ended June 30,
                                                ------------------------------
                                                    2004              2003
                                                ------------      ------------
                                                         (unaudited)

Revenue                                         $    505,306      $    277,244
Cost of sales                                        228,266            98,125
                                                ------------      ------------
Gross profit                                         277,041           179,119
General and administrative expenses                2,912,239           606,386
                                                ------------      ------------
Loss  from  operations                            (2,635,199)         (427,267)

Other income (expense):
      Interest expense                                  (514)           (6,941)
      Interest and miscellaneous, net                 14,327            32,938
                                                ------------      ------------
                                                      13,813            25,997
                                                ------------      ------------
Loss before income tax                            (2,621,385)         (401,270)
Income tax provision                                      --                --
                                                ------------      ------------
Net loss                                          (2,621,385)         (401,270)
                                                ------------      ------------

Deemed dividend associated with
   beneficial conversion of preferred stock       (1,737,908)          (79,280)
                                                ------------      ------------
Net loss availiable to common shareholders      $ (4,359,293)     $   (480,550)
                                                ============      ============

Basic and diluted earnings per share            $      (0.15)     $      (0.02)
                                                ============      ============

Weighted average shares outstanding               29,280,447        24,535,528
                                                ============      ============


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

                                       5
<PAGE>

SLS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                             For The Six Months
                                                                               Ended June 30,
                                                                         ----------------------------
                                                                             2004             2003
                                                                         -----------      -----------
                                                                                 (unaudited)
<S>                                                                      <C>              <C>
Operating activities:
      Net loss                                                           $(5,405,203)     $  (855,716)
      Adjustments to reconcile net income to cash flows
        from operating activities:
           Depreciation and amortization                                      25,309            5,407
           Amortization of cost of stock issued for services                 140,008          443,536
           Expense of stock options granted for services                   2,416,569           23,134
           Gain on disposal of fixed assets                                   (3,000)              --
           Goodwill impairment charge                                      1,148,502               --
      Change in assets and liabilities-
           Accounts receivable, less allowance for doubtful accounts         (77,975)          91,889
           Inventory                                                        (427,969)        (169,452)
           Deposits - Inventory                                             (220,457)              --
           Prepaid expenses and other current assets                              --            3,079
           Accounts payable                                                 (101,130)          77,280
           Due to shareholders                                                    --             (519)
           Accrued liabilities                                                16,437           22,826
                                                                         -----------      -----------

           Cash used in operating activities                              (2,488,909)        (358,536)
                                                                         -----------      -----------

Investing activities:
      Proceeds from disposal of fixed assets                                   3,000               --
      Additions of fixed assets                                             (148,458)              --
                                                                         -----------      -----------

           Cash used in investing activities                                (145,458)              --
                                                                         -----------      -----------

Financing activities:
      Sale of stock, net of expenses                                       4,928,350          371,600
      Acquisition of subsidiary                                             (400,000)              --
      Borrowings of notes payable                                                 --          102,000
      Repayments of notes payable                                             (2,107)         (13,948)
                                                                         -----------      -----------

           Cash provided by financing activities                           4,526,243          459,652
                                                                         -----------      -----------

Increase in cash                                                           1,891,876          101,116
Cash, beginning of period                                                  1,482,786            4,240
                                                                         -----------      -----------

Cash, end of period                                                      $ 3,374,662      $   105,356
                                                                         ===========      ===========


Supplemental cash flow information:
      Interest paid                                                      $        --      $     6,027
      Income taxes paid (refunded)                                                --               --

Noncash investing activities:
      Stock issued and options granted for services                      $ 2,416,569      $    93,000
</TABLE>


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

                                       6
<PAGE>


                             SLS INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION
         The accompanying unaudited condensed consolidated financial statements
         at June 30, 2004 have been prepared in accordance with U.S. generally
         accepted accounting principles for interim financial information and
         with the instructions to Form 10-QSB and reflect all adjustments which,
         in the opinion of management, are necessary for a fair presentation of
         financial position as of June 30, 2004 and results of operations and
         cash flows for the six months ended June 30, 2004. All such adjustments
         are of a normal recurring nature. The results of operations for the
         interim period are not necessarily indicative of the results expected
         for a full year. Certain amounts in the 2003 financial statements have
         been reclassified to conform to the 2004 presentations. The statements
         should be read in conjunction with the financial statements and
         footnotes thereto included in our Form 10-KSB for the year ended
         December 31, 2003.

NOTE 2 - COMMITMENTS AND CONTINGENCIES
         GOING CONCERN
         The accompanying unaudited condensed consolidated financial statements
         at June 30, 2004 have been prepared in conformity with U.S. generally
         accepted accounting principles which contemplate our continuance as a
         going concern. We have suffered losses from operations during the six
         months ended June 30, 2004 and the years ended December 31, 2003, 2002,
         and 2001. Our cash position may be inadequate to pay all of the costs
         associated with establishing a market for sales of our loudspeakers. We
         intend to use borrowings and security sales to improve our cash
         position, however no assurance can be given that debt or equity
         financing , if and when required, will be available. The unaudited
         condensed consolidated financial statements do not include any
         adjustments relating to the recoverability and classification of
         recorded assets and classification of liabilities that might be
         necessary if we are unable to continue in existence.

NOTE 3 - NOTES PAYABLE
         At December 31, 2003 and June 30, 2004, there is a note payable to an
         individual in the amount of $25,000. This note bears interest of 7% and
         is past due. There is also a note payable for equipment in the amount
         of $19,877 and $17,770 as of December 31, 2003 and June 30, 2004,
         respectively. This note bears interest of 5.16% and matures in
         September of 2008. Interest expense for the year ended December 31,
         2003 and the six months ended June 30, 2004 was $5,763 and $1,019,
         respectively.

                                       7
<PAGE>

NOTE 4 - STOCK TRANSACTIONS
         In the six months ended June 30, 2004, 183,000 shares shown at December
         31, 2003 as "stock not issued but owed to buyers" were issued.

         In July 2003, we entered into an endorsement agreement with the
         recording artist Sting through Steerpike Ltd. The agreement grants
         1,100,000 options in exchange for future endorsements of our products.
         Each option is convertible into one share of common stock at a strike
         price of $0.25 and is exercisable for a period of five years. Expense
         associated with the options will be recorded over the two-year period
         of the agreement beginning July 31, 2003 and ending July 31, 2005.
         Expense will be recorded at fair market value, using the Black-Scholes
         pricing model, on an accelerated method, thereby recording a larger
         portion of the costs in the earlier months of the two year period.
         Consulting expense relating to this agreement was $790,842 for the six
         months ended June 30, 2004. As of June 30, 2004 approximately 908,000
         of the 1,100,000 options have been earned and expensed. Expenses to be
         recorded in the remaining quarters of the year ended December 31, 2004
         and 2005 are unknown at this time because they are partly based on the
         market price over those periods.

         In November 2003, an agreement was signed with William Fischbach for
         consulting services to be performed November 10, 2003 to November 10,
         2006. As compensation for the consulting services we issued 400,000
         shares of common stock on November 11, 2003. Using the market value of
         the date the agreement was signed, the shares were valued at $780,000
         and recorded as a debit in the equity section of the balance sheet as
         unamortized cost of stock issued for services. The cost is amortized
         over the three-year period of the agreement. Consulting expense
         relating to this agreement was $130,000 for the six months ended June
         30, 2004. On June 30, 2004 there was $613,671 remaining in unamortized
         stock issued for services for this agreement. The agreement also calls
         for the issuance of options, not to exceed an aggregate of 800,000, to
         Mr. Fischbach on January 1 or each year based on the previous year's
         performance levels. No options were issued on January 1, 2004 under
         this agreement. As of June 30, 2004, Mr. Fischbach had earned no
         options based on his performance in the six months ended June 30, 2004.
         The agreement also calls for additional compensation to Mr. Fischbach
         in the form of a cash fee of 2% of the dollar amount of value provided
         in a merger, acquisition, or other transaction resulting directly from
         Mr. Fischbach's services. As of June 30, 2004, Mr. Fischbach had earned
         no cash fee based on the value provided to us in the six months ended
         June 30, 2004.

         In June 2004, we entered into a promotion agreement with the recording
         artist Quincy Jones through Global Drumz, Inc. We made a cash payment
         of $250,000 to Global Drumz, Inc. on the date of the agreement.


                                       8
<PAGE>

         Pursuant to the agreement, we granted options to purchase 1,000,000
         shares of our common stock in exchange for various consulting services.
         The option has a strike price of $2.00 per share and is exercisable for
         a period of five years. We also issued a warrant, with a five-year
         term, for 1,000,000 additional shares of common stock at an exercise
         price of $7.00 per share. In the event that the closing price of our
         common stock does not exceed $7.00 per share for a period of five
         consecutive business days during the period commencing on June 2, 2004
         and ending on the expiration of the term of the options, we shall pay
         additional compensation of $250,000. Expense associated with the
         options will be recorded over the one-year vesting period of the
         agreement beginning June 2, 2004 and ending June 2, 2005. The options
         and warrants automatically vest as to 50% of the stock covered thereby
         upon the effective date of the agreement and as to one-sixth of the
         remaining stock covered thereby monthly thereafter. Expense will be
         recorded at fair market value, using the Black-Scholes pricing model,
         on an accelerated method, thereby recording a larger portion of the
         costs in the earlier months of the one-year period. Consulting expense
         relating to this agreement was $1,492,291 for the six months ended June
         30, 2004. As of June 30, 2004 approximately 705,000 of the 1,000,000
         options have been earned and expensed. Expenses to be recorded in the
         remaining quarters of the year ended December 31, 2004 and 2005 are
         unknown at this time because they are partly based on the market price
         over those periods.

         In the six months ended June 30, 2004, 195,200 Class A warrants were
         exercised for 195,200 shares of common stock for a total of $97,600.
         555,200 Class A warrants are outstanding as of June 30, 2004. The
         expiration date of the Class A warrants has been extended to August 5,
         2004.

         In the six months ended June 30, 2004, 6,000 Class B warrants were
         exercised for 6,000 shares of common stock for a total of $18,000.
         3,977,400 Class B warrants are outstanding as of June 30, 2004. The
         expiration date of the Class B warrants has been extended to August 5,
         2004.

         In the six months ended June 30, 2004, we commenced an offering of
         Series B preferred stock and sold 257,100 shares of preferred stock,
         series B, for $4,815,750, net of expenses. As of June 30, 2004, 37,500
         of these shares had not been issued and are, therefore, listed on these
         financial statements as "not issued but owed to buyers". These shares
         were issued in July of 2004. This preferred stock contains a beneficial
         conversion feature. The feature allows the holder to convert the
         preferred to 10 shares of common stock six months after buying the
         shares. Attached to each preferred share are ten Class C warrants. Each
         Class C warrant has a term of three years and provides the right to
         purchase one share of our common stock at $7.00 per share. If the
         average closing market price for our common stock is equal to or


                                       9
<PAGE>

         greater than $10.50 for a period of 30 days, then such warrants are
         capable of being repurchased with a 30-day notice, at a price of $.001
         per warrant. A discount on preferred shares of $2,108,150 relating to
         the beneficial conversion feature was recorded and will be amortized
         over the six month period beginning with the date the shareholders
         purchased their shares. On July 28, 2004, the offering was closed.

         In the six months ended June 30, 2004, $2,709,385 of the unamortized
         discount on preferred shares, series A and B, has been amortized to
         retained earnings. At June 30, 2004, the unamortized discount on
         preferred shares, series A and B, was $1,285,342.

         In the six months ended June 30, 2004, 51,940 shares of preferred
         stock, series A, were converted to 519,400 shares of common stock.

         In the six months ended June 30, 2004, 100,000 options were granted for
         consulting services. The options have a strike price equal to the
         market price on their grant date, ranging from $2.73 to $3.10. Using
         the Black-Scholes pricing model, the options were valued at $161,900
         and recorded as consulting expense.

NOTE 5 - UNAMORTIZED COST OF STOCK ISSUED FOR SERVICES
         During the years ended December 31, 2003 and 2002, we issued or agreed
         to issue 3,215,452 shares of common stock, granted 500,000 options for
         common stock, and 100,000 options for preferred stock, series A, as
         part of consulting agreements. The value of stock issued and options
         granted totaled $913,036 and $1,599,213 for the years ended December
         31, 2003 and 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 is amortized into consulting expense over the
         lives of the various consulting agreements. For the six months ended
         June 30, 2004, $140,008 was amortized into consulting expense.
         Unamortized cost of stock issued for services was $641,196 as of June
         30, 2004.

NOTE 6 - CONSULTING, PROMOTIONAL AND INVESTOR RELATIONS SERVICES
         Consulting and investor relation services expense was $3,118,036 for
         the six months ended June 30, 2004. Consulting and investor relation
         expenses incurred are detailed below:

        Consulting expenses relating to stock issued for consulting agreements
        was $140,008 (See Note 5) in the six months ended June 30, 2004.
        Consulting expenses relating to options issued for services was
        $2,575,033 (See Note 4) for the six months ended June 30, 2004.

                                       10
<PAGE>

         In the six months ended June 30, 2004, we settled a lawsuit brought by
         a former consultant. The former consultant returned 100,000 shares of
         common stock for cancellation in exchange for $250,000 paid in March
         and April of 2004. This settlement was expensed as consulting expense
         in the six months ended June 30, 2004.

         Various individuals and corporations performed consulting services and
         investor relation services for us during the six months ended June 30,
         2004 and were paid $152,995.

NOTE 7 - ACQUISITIONS
         We entered into an agreement with the owners of SA Sound B.V. and SA
         Sound USA, Inc. giving us an option to acquire said companies at any
         time prior to February 27, 2004 for a purchase price of 370,000 euros,
         approximately $467,000. We paid 50,000 euros, approximately $63,000 for
         this option. The option agreement entitled us to a refund of the option
         price if the due diligence performed disclosed any material adverse
         facts. After completion of the due diligence, we determined not to
         exercise the option to purchase and we have asserted a right to a
         refund of the option price. The sellers have challenged the return of
         the option fee. $109,165 has been recorded as acquisitions expense in
         the six months ended June 30, 2004 in relation to the option price and
         related legal fees for this acquisition attempt.

         On March 12, 2004, we acquired Evenstar, Inc., by a merger with and
         into our newly formed, wholly owned subsidiary, Evenstar Mergersub,
         Inc. (Mergersub). In consideration for Evenstar, Inc., we paid $300,000
         in cash and issued 300,000 shares of common stock to the stockholders
         of Evenstar, Inc. Using the market value of the common stock on the day
         of the acquisition and the amount of cash given, the total acquisition
         price was $1,161,000. An asset was recorded on these financial
         statements in the amount of $12,498 for a patent acquired in the
         merger. Evenstar had no other assets or liabilities, therefore, the
         remaining $1,148,502 was recorded as goodwill on these financial
         statements.

         On March 12, 2004 we performed an impairment test on the goodwill
         recorded in the merger with Evenstar, Inc. We determined that the
         goodwill was impaired and an impairment charge of $1,148,502 was
         recorded. This charge is shown on the condensed consolidated statement
         of operations in the general and administrative expenses.

         On April 2, 2004, we entered into a strategic alliance agreement with
         Bohlender-Graebener Corporation ( BG ). We paid BG $100,000 on April 2,
         2004 for this agreement. The agreement term is for one year and can be
         extended for any length of time after the first year by mutual
         agreement between BG and us. During the term of the agreement BG is
         required to work with us, diligently and in good faith, to consummate a
         merger. During the first six months of the agreement, BG is not
         permitted to solicit any offer to purchase BG, and is not permitted to
         respond to any unsolicited offer. In addition to the above, BG will


                                       11
<PAGE>

         grant us exclusive sales and marketing rights to certain BG products
         and we have committed to purchase certain minimum quantities of various
         BG products at agreed upon prices. Those purchase commitments are as
         follows; $175,000 in the third quarter of 2004, $175,000 in the fourth
         quarter of 2004, and $200,000 in the first quarter of 2005. In the
         event no agreement to merge the Companies on mutually acceptable terms
         can be reached before termination of the agreement, BG will be entitled
         to keep the $100,000 cash payment as consideration for its performance
         under the agreement.

NOTE 8 - EMPLOYEE STOCK OPTIONS
         During the second quarter of 2003, the Company adopted the fair value
         recognition provisions of FASB Statement No. 123, Accounting for
         Stock-Based Compensation, effective as of the beginning of the year.
         There were no previous granting of options to employees prior to the
         second quarter of 2003 and therefore this adoption has no effect on
         previous financial statements. No method of reporting the change in
         accounting principle has been used.

         The board of directors approved 75,000 options for directors in the six
         months ended June 30, 2004. The options have a strike price of $2.21,
         expire in 10 years, and vest immediately. 25,000 options were approved
         for each of three board members for their roles as directors of the
         company. Using the Black-Scholes pricing model, in accordance with the
         fair value recognition provision of FASB Statement No. 123, the options
         were valued at $87,786 and recorded as compensation expense in the six
         months ended June 30, 2004.

NOTE 9 - SUBSEQUENT EVENTS
         From July 1 to July 28, 2004, we sold 15,000 shares of preferred stock,
         series B, for $300,000. On July 28, 2004 the private placement offering
         was closed.

         On July 1, 2004, we issued 37,500 shares of preferred stock, series B
         that were owed to buyers as of June 30, 2004.

         From July 1 to July 29, 2004, 240,860 shares of preferred stock, series
         A, were converted to 2,408,600 shares of common stock.

         We intend to make a rescission offer to all warrant holders who
         exercised warrants during the period from May 1, 2002 through May 10,
         2004. We are doing this because the registration statement filed with
         the US Securities and Exchange Commission to register the common stock
         issuable upon exercise of the warrants may not have been "current"
         because it had not been amended to include our most recent audited
         financial statements. The former warrant holders will be entitled to


                                       12
<PAGE>

         rescind their purchases. Once made, the rescission offer is open for 30
         days. The rescission offer would require us to purchase warrants back
         at their original exercise price, $.50 for the Class A warrants and
         $3.00 for the Class B warrants, at each warrant holder's option. The
         current market price is well above the $.50 exercise price of the Class
         A warrants so no adjustment to the financial statements for the year
         ended December 31, 2003 and the six months ended June 30, 2004 have
         been made for the rescission offer. The current market price is below
         the $3.00 exercise price of the Class B warrants. 22,600 Class B
         warrants were exercised during the rescission offer period, so the
         rescission offer would not have a material liability effect on these
         financial statements. Therefore, no adjustment has been made. If all
         warrant holders accepted the rescission offer, we would be required to
         pay $1,340,700 plus interest, which amount would be reduced to the
         extent of the proceeds from any sales of the underlying common stock by
         the former warrant holders. Acceptance of the rescission offer by all
         former warrant holders could have a material adverse effect of these
         financial statements.


                                       13
<PAGE>


ITEM 2.  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, Home
Theatre systems, a line for recording and broadcast studios, a line for
contractor installations and touring companies, and a line of in-wall,
in-ceiling and outdoor loudspeakers.

         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 new 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.

         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.

                                       14
<PAGE>

RESULTS OF OPERATIONS

         QUARTER ENDED JUNE 30, 2004 AS COMPARED TO THE QUARTER ENDED JUNE 30,
2003. For the quarter ended June 30, 2004, revenue increased to $505,306 from
$277,244 in the 2003 period, an 82% increase, resulting primarily from the
positive results of a new marketing program we started in January 2004 and our
increased production capabilities resulting from a facilities expansion
completed in December 2003. Our gross profit percentage decreased to
approximately 55% in the 2004 period from approximately 65% in the 2003 period,
primarily as a result of new personnel that were in training and sales of
several large systems at a high promotional discount, as well as the unusually
high historical gross profit percentage in the 2003 period.

         General and administrative expenses for the 2004 second quarter
increased to $2,912,239 from $606,386 in the 2003 second quarter, an increase of
$2,305,853. The increase resulted primarily from $2,102,093 in consulting and
investor relation services expenses (as further described in Note 6 to the
financial statements), $1,680,698 of which were non-cash charges for the
amortization of stock and options issued under consulting agreements; $87,786 in
compensation expense for the non-cash charge for issuances of stock options (as
further described in Note 8 to the financial statements); and a cash payment of
$250,000 pursuant to a promotion agreement with the recording artist Quincy
Jones through Global Drumz, Inc.

         Due to the increase in general and administrative expenses, partially
offset by the revenue increase, our net loss increased to $2,621,385 in the
second quarter of 2004 as compared to a net loss of $401,270 in the comparable
quarter of 2003.

         Other income (expense) decreased to net other income of $13,813 in the
2004 second quarter as compared to net other income of $25,997 in the 2003
second quarter, primarily due to other income recognized in the 2003 period from
the write-off of accounts payable.

         SIX MONTHS ENDED JUNE 30, 2004 AS COMPARED TO THE SIX MONTHS ENDED JUNE
30, 2003. For the first six months of 2004, revenue increased to $926,222 from
$382,021 in the first six months of 2003, a 142% increase, resulting primarily
from the positive results of a new marketing program we started in January 2004
and our increased production capabilities resulting from a facilities expansion
completed in December 2003. Our gross profit percentage decreased to
approximately 48% in the 2004 period from approximately 59% in the 2003 period,
primarily as a result of new personnel that were in training and sales of
several large systems at a high promotional discount, as well as the unusually
high historical gross profit percentage in the 2003 period. Due primarily to the
increase in general and administrative expenses, as discussed below, and
partially offset by the revenue increase, our net loss increased to $5,405,203
in the first half of 2004 as compared to a net loss of $855,715 in the first
half of 2003.

         General and administrative expenses for the first six months of 2004
increased to $5,868,928 from $1,108,535 in the 2003 period, primarily as a
result of consulting and investor relations services expenses of $3,118,036 in
the 2004 period ($2,335,041 of which were non-cash charges), compared to
$511,027 in the 2003 period.

                                       15
<PAGE>

         Other income decreased to net other income of $18,684 in the 2004
period as compared to net other income of $26,360 in the 2003 period, primarily
due to other income recognized in the 2003 period from the write-off of accounts
payable.

FINANCIAL CONDITION

         On June 30, 2004, our current assets exceeded current liabilities by
$4,760,770, compared to an excess of $1,945,227, on December 31, 2003. Total
assets exceeded total liabilities by $5,190,213, compared to an excess of total
assets over total liabilities of $2,249,489 on December 31, 2003. The increased
working capital was primarily due to the sale of 257,100 shares of Series B
Preferred Stock for net proceeds of $4,815,750 in the first half of 2004. In
addition to funding operations, the proceeds from such sales of stock allowed us
to increase cash by $1,891,876, increase inventory by $427,969, increase net
fixed assets by $123,149, decrease accounts payable by $101,130, increase
accounts receivable by $77,975, and pay deposits totaling $320,457 for inventory
and a potential merger. On June 30, 2004, we had a backlog of orders of
approximately $125,000.

         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. 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 order to continue operations, we have been dependent on raising
additional funds, and as discussed above, we commenced a new private placement
of Series B Preferred Stock in the first quarter of 2004 to raise capital. As
discussed above, through June 30, 2004, we sold 257,100 shares of Series B
Preferred Stock for net proceeds of $4,815,750. Each share is convertible into
ten shares of our common stock six months after purchase. Prior to conversion,
the shares have no voting rights. Attached to each preferred share are ten of
our class C warrants. Each class C warrant has a term of three years and
provides the right to purchase one share of our common stock at $7.00 per share.
The class C warrants are immediately exercisable and detachable from the
preferred share. If the average closing market price for our common stock is
equal to or greater than $10.50 per share for a period of 30 days, then we are
entitled to repurchase such warrants, with 30 days notice, at a price of $.001
per warrant.

         In the first half of 2004, we also received an aggregate of $115,600 in
cash in payment of the exercise price for the exercise of outstanding warrants.
The shares of common stock were issued pursuant to a registration statement
declared effective by the U.S. Securities and Exchange Commission in 2001,
registration statement number 333-43770. However, since May 1, 2002, such
registration statement may not have been "current" because the registration
statement had not been amended to include our most recent audited financial
statements. As a result, the former warrant holders may be entitled to demand a
rescission of their previous exercises of common stock. We intend to make a
rescission offer to all warrant holders who exercised warrants during the period
from May 1, 2002 through May 10, 2004 (the date that an amendment to the
registration statement was declared effective, making the registration statement
"current"). Once made, the rescission offer is expected to remain open for 30


                                       16
<PAGE>

days. The rescission offer would require us to repurchase the shares of common
stock issued upon exercise of the warrants at their original exercise price,
$.50 for the Class A warrants and $3.00 for the Class B warrants, at each
warrant holder's option. If all warrant holders accepted the rescission offer,
we would be required to pay $1,340,700 plus interest, which amount would be
reduced to the extent of the proceeds from any sales of the underlying common
stock by the former warrant holders. Acceptance of the rescission offer by all
former warrant holders could have a material adverse effect. The current market
price is over the $.50 exercise price of the Class A warrants, and if that
remains true, we would expect no former holders of Class A Warrants to accept
the rescission offer. The current market price is below the $3.00 exercise price
of the Class B warrants. Only 22,600 Class B warrants were exercised during the
rescission offer period, making our potential rescission liability to the former
Class B warrant holders equal to $67,800 plus interest, which amount would be
reduced to the extent of any sales of the underlying common stock by the former
warrant holders.

         In the 2004 first quarter, we entered into an agreement with the owners
of SA Sound B.V. and SA Sound USA, Inc. giving us an option to acquire said
companies at any time prior to February 27, 2004 for a purchase price of 370,000
euros, or approximately $467,000. We paid approximately $63,000 for this option.
The option agreement entitled us to a refund of the option price if the due
diligence performed disclosed any material adverse facts. After completion of
the due diligence, we determined not to exercise the option to purchase and we
have asserted a right to a refund of the option price. The sellers have
challenged the return of the option fee.

         On March 12, 2004, we acquired Evenstar, Inc., by a merger with and
into our newly formed, wholly owned subsidiary, Evenstar Mergersub, Inc.
Evenstar is the owner of one issued patent and a second patent that has been
granted and is expected to be issued in the near future. The patents are for
Evenstar's digital amplification technology, which provides for substantially
reduced production costs compared to amplifiers of comparable quality. In
consideration for Evenstar, we paid $300,000 in cash and issued 300,000 shares
of common stock to the stockholders of Evenstar. In connection with the
acquisition, we hired the former president of Evenstar as the head of our new
electronics division, with responsibility for designing and developing new
electronics products. Our ability to integrate Evenstar into our operations will
have a substantial effect on our future performance.

         On April 2, 2004, we entered into a strategic alliance agreement with
Bohlender-Graebener Corporation ("BG"). We paid BG $100,000 on April 2, 2004 for
this agreement. The agreement term is for one year and can be extended for any
length of time after the first year by mutual agreement between BG and us.
During the term of the agreement BG is required to work with us, diligently and
in good faith, to consummate a merger. During the first six months of the
agreement, BG is not permitted to solicit any offer to purchase BG, and is not
permitted to respond to any unsolicited offer. In addition to the above, BG has
granted us exclusive sales and marketing rights to certain BG products and we
have committed to purchase certain minimum quantities of various BG products at
agreed upon prices. Those purchase commitments are as follows; $175,000 in the
third quarter of 2004, $175,000 in the fourth quarter of 2004, and $200,000 in
the first quarter of 2005. In the event no agreement to merge the Companies on
mutually acceptable terms can be reached before termination of the agreement, BG
will be entitled to keep the $100,000 cash payment as consideration for its
performance under the agreement.

                                       17
<PAGE>

         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. On June 30, 2004, we
had $3,374,662 in cash. We believe this cash is more than sufficient to fund our
planned operations for at least the next twelve months.

         In the past, we have been able to privately borrow money from
individuals by the issuance of notes, and we have been able to raise money by
the issuance of preferred stock and common stock. 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.

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 our
Annual Report on Form 10-KSB and economic, competitive and other factors
affecting our operations, markets, products and services, expansion strategies
and other factors discussed elsewhere in this report, our Annual Report on Form
10-KSB 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 3.  CONTROLS AND PROCEDURES.

         As of June 30, 2004, 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 June 30, 2004.

                                       18
<PAGE>

         As a result of the audit of our financial statements for the year ended
December 31, 2002, we were 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 such controls and procedures.

         We have made no changes in our internal control over financial
reporting during the quarter ended June 30, 2004 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

                                       19
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES.

         In the quarter ended June 30, 2004, the Company sold 113,600 shares of
Series B Preferred Stock for $2,251,500 in net cash proceeds. All sales were
made to accredited investors. Each share of preferred stock is convertible into
ten shares of common stock after six months. Attached to each preferred share
are ten of our class C warrants. Each class C warrant has a term of three years
and provides the right to purchase one share of our common stock at $7.00 per
share. The sales were made in reliance on Section 4(2) of the Securities Act of
1933, as amended.

         The net proceeds from the sale of preferred stock in the second quarter
of 2004 are to be used for sales, marketing and advertising expenses, increases
in inventory, and working capital purposes. All of the foregoing uses of
proceeds were direct or indirect payments to nonaffiliates.

         In June 2004, we entered into an endorsement / consulting agreement
with the recording artist Quincy Jones through Global Drumz, Inc., pursuant to
which we granted options to purchase 1,000,000 shares of common stock, at an
exercise price of $2.00 per share, in exchange for future endorsements of our
products and various other consulting services. Each option is exercisable for a
period of five years. Pursuant to the agreement, we also issued a warrant, with
a five-year term, for 1,000,000 additional shares of common stock at an exercise
price of $7.00 per share. The options automatically vest as to 50% of the
options upon the effective date of the agreement and as to one-sixth of the
remaining options monthly thereafter. The issuances to Global Drumz were made in
reliance on Section 4(2) of the Securities Act of 1933, as amended.

                                       20
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits. The following are being filed as exhibits to this
                  Report:

               Exhibit No.               Description of Exhibit
               -----------               ----------------------

                  4.1      Certificate of Designations for Series B Preferred
                           Stock

                  4.2      Form of Class C Warrant

                  10.1     Promotion Agreement, dated June 2, 2004, between SLS
                           International, Inc. and Global Drumz, Inc.

                  10.2     Option Agreement, dated June 2, 2004, between SLS
                           International, Inc. and Global Drumz, Inc.

                  10.3     Redeemable Warrant, dated June 2, 2004, issued by SLS
                           International, Inc. in favor of Global Drumz, Inc.

                  10.4     Redeemable Warrant, dated March 23, 2004, issued by
                           SLS International, Inc. in favor of Kenny Securities
                           Corp.

                  31       Rule 13a-14(a) / 15d-14(a) Certifications*

                  32       Section 1350 Certifications

         (b)      Reports on Form 8-K. We filed a Report on Form 8-K/A on May
                  20, 2004 to file financial statements and pro forma financial
                  information relating to our acquisition of Evenstar, Inc.


                                       21
<PAGE>


                                    SIGNATURE
                                    ---------

         Pursuant to the requirements 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.
                                             (Registrant)





Date: August 6, 2004                         By /s/ John Gott
                                                -----------------------
                                                John Gott
                                                President and
                                                Chief Financial Officer
                                                (Principal Financial Officer)


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