SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K / A
AMENDMENT NO. 1
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005 Commission file number 001-31323
SLS INTERNATIONAL, INC.
Incorporated under the Laws of the I.R.S. Employer Identification No.
State of Delaware 52-2258371
1650 W. JACKSON, OZARK, MISSOURI 65721
(417) 883-4549
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark if the registrant is a well-seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 past 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act:
Large accelerated filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [X]
The aggregate market value of our common stock held by nonaffiliates
was approximately $45,277,301 on March 21, 2006. On March 21, 2006, 46,608,310
shares of our common stock were outstanding, and the closing price per share of
our common stock was $1.13.
EXPLANATORY NOTE
Our Annual Report on Form 10-K for the year ended December 31, 2005, filed with
the Securities and Exchange Commission on March 31, 2006, contemplated that the
information to be included in Part III would be incorporated into the report by
reference to our Proxy Statement to be filed for our 2006 annual meeting of
stockholders. We have now decided instead to amend the report to include the
information required to be included in Part III. Items in the original report
that are not included herein are not amended and remain in effect as of the date
of the original filing.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
The following table identifies our executive officers and directors on
April 14, 2006:
----------------------- --- ----------------------------------------------
NAME AGE POSITION
----------------------- --- ----------------------------------------------
John M. Gott 55 Chairman, Chief Executive Officer and Director
----------------------- --- ----------------------------------------------
Steven Lamar 35 President
----------------------- --- ----------------------------------------------
Michael L. Maples 56 Chief Operating Officer, Chief Financial
Officer and Director
----------------------- --- ----------------------------------------------
Chuck Foudree 61 Director
----------------------- --- ----------------------------------------------
Robert H. (Robin) Luke 64 Director
----------------------- --- ----------------------------------------------
Robert Ring 63 Director
----------------------- --- ----------------------------------------------
JOHN M. GOTT, our Chairman, Chief Executive 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. In that capacity he spearheaded our
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. Mr. Gott has acted in his current capacities since our
inception. He also served as President from our inception until we hired Steven
Lamar in June 2005.
STEVEN LAMAR has served as our President since June 17, 2005. He has
spent over 15 years in the financial services industry. Prior to joining SLS,
Mr. Lamar was a co-founder and Managing Partner of BayStar Capital Management,
LLC, a San Francisco-based hedge fund specializing in private investments in
public equities (PIPEs). Prior to BayStar, Mr. Lamar was the Head of
Institutional Sales at Shoreline Pacific, where he represented companies,
lenders, and investors in PIPE transactions. From 1989 - 1996, Mr. Lamar served
in various positions in retail, commercial banking at Citibank and Wells Fargo
Bank. Mr. Lamar is Vice Chairman and Board Member of Allied Container Systems, a
designer and manufacturer of turn-key solutions for storage, shelter and
training facilities. Mr. Lamar is a founding member of Ammo Marketing's
Influencer Advisory Board. Mr. Lamar received his Bachelor of Science degree in
Business Administration with an emphasis in finance from San Diego State
University in 1992.
MICHAEL L. MAPLES has served as a Director since 2001, and as Chief
Operating Officer and Chief Financial Officer since June 17, 2005. He has also
acted as a consultant, overseeing all of the Company's accounting and
Sarbanes-Oxley related functions for the past two years. From 1996 through June
2005, he was 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.
CHUCK FOUDREE, has served as a Director since July 8, 2005. He also
serves on our Audit Committee as Chairman and on our Compensation Committee. Mr.
Foudree served in numerous positions at Harmon Industries, Inc. from 1972
through 1999, including Executive Vice President - Finance and Chief Financial
Officer. He is a director of Sceptor Industries, Inc. and Carondelet Health and
a former director of OTR Express, Inc. and Harmon Industries, Inc. Mr. Foudree
also serves on a variety of community boards including the Harry S. Truman
Library Institute and the St. Paul School of Theology. His past directorships
and trusteeships include Truman State University Foundation, St. Mary's Hospital
Foundation and the Financial Executives Institute. Mr. Foudree is a graduate of
Truman State University with a degree in Accounting. He is a certified public
accountant in the states of Missouri and Kansas.
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
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,
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.
2
ROBERT RING has served as a Director since June 21, 2005. He has also
served on our Audit Committee and our Compensation Committee. Since 1994, Mr.
Ring has consulted in the areas of business process and strategic development
with companies that compete in retail, manufacturing, distribution and a variety
of service areas. Mr. Ring also is a director of Bass Pro Shops, Cobalt Boats
and Duckwall-Alco Stores, Inc. Prior to 1994, Mr. Ring spent 32 years with The
Coleman Company. His career at Coleman involved a progression of sales and
marketing assignments, the President/General Manager position of Coleman's
Recreation Business, Executive Vice President of Worldwide Sales and Marketing,
and most recently President and COO from 1990 through 1994.
Mr. Ring also serves on a variety of community boards including the Via
Christi Research Foundation Board, the Kansas Wildscape Foundation Board and the
Wichita State University Students in Free Enterprise Business Advisory Board.
His past service includes the Board of the Wichita Area Chamber of Commerce; the
Board of, and two years as Chair of, the Wichita Minority Business Development
Committee; the World Trade Center Board; the Wichita Committee of 100 Board; and
the Wichita Area Technical College Advisory Board. Mr. Ring is a graduate of The
Wichita State University with a degree in Business.
BOARD COMMITTEES
The Board of Directors of the Company held two meetings during 2005.
The Board of Directors has an Audit Committee, a Compensation Committee, and a
Nominating and Corporate Governance Committee. The members of each committee are
Messrs. Foudree, Luke and Ring, with Mr. Foudree serving as Chair of the Audit
Committee, Mr. Luke as Chair of the Compensation Committee, and Mr. Ring as
Chair of the Nominating and Corporate Governance Committee. No Director attended
fewer than 75% of the aggregate number of meetings of the Board of Directors and
the Committees on which he served during the period in 2005 for which he was a
Director.
Mr. Foudree qualifies as an audit committee financial expert. Each of
Messrs. Foudree, Luke and Ring is "independent" under Item 7(d)(3)(iv) of
Schedule 14A under the U.S. Securities Exchange Act and is "independent" under
Section 121(A) of the American Stock Exchange listing standards.
Stockholders who wish to communicate directly with one or more
Directors may do so by mailing such communications to the Company's principal
offices at 1650 W. Jackson, Ozark, Missouri 65714, attention: CEO. The CEO will
then relay all communications to the appropriate Director(s).
The Company does not have a policy regarding the attendance of
Directors at annual meetings of stockholders.
PROCEDURE FOR DIRECTOR NOMINATIONS BY STOCKHOLDERS
The Nominating and Corporate Governance Committee will consider all
candidates for Director that are recommended by stockholders. Recommendations
should be mailed to the Company's principal offices, 1650 W. Jackson, Ozark,
Missouri 65714, attention: CEO, at least 120 days prior to the year's annual
meeting. The committee gives no special positive or negative consideration to a
candidate based on the party that recommended the candidate.
3
CODE OF ETHICS
We have adopted a code of ethics applicable to our Chief Executive
Officer, Chief Financial Officer, controller and other financial leaders, as
well as to our employees generally, which is a "code of ethics" as defined by
applicable rules of the Securities and Exchange Commission. This code will be
made available to any person, without charge, by mailing a written request to
our principal offices, 1650 W. Jackson, Ozark, Missouri 65714, attention: CFO.
If we make any amendments to this code, other than technical, administrative or
other non-substantive amendments, or grant any waivers, including implicit
waivers, from a provision of this code to our Chief Executive Officer, Chief
Financial Officer, or controller, we will disclose the nature of the amendment
or waiver, its effective date and to whom it applies on our website or on a
Current Report on Form 8-K filed with the Securities and Exchange Commission.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who own more than ten percent of a
registered class of our common stock, to file with the SEC initial statements of
beneficial ownership (Form 3) and statements of changes in beneficial ownership
(Forms 4 and 5) of our common stock. Executive officers, directors and greater
than ten-percent stockholders are required to furnish us with copies of all such
forms they file.
To our knowledge based solely on review of the copies of such forms we
received, or written representations from certain reporting persons that no
additional forms were required, all filing requirements applicable to our
executive officers, directors and greater than ten-percent stockholders were
complied with, with the exception of (a) the Form 3 filings by Messrs. Gott,
Lamar, Maples, Foudree, Luke and Ring, which were filed late on November 1,
2005, when their due date was October 23, 2005 and (b) the Form 4 filing by Mr.
Maples on January 9, 2006, which reported two sales, one of which was due to be
reported on December 21, 2005 and the other was due on December 27, 2005.
4
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the compensation received by our chief
executive officer, and each of our other two executive officers on December 31,
2005, for services rendered to us in 2005, 2004 and 2003.
LONG-TERM COMPENSATION
----------------------
COMMON STOCK
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) AWARDS OF OPTIONS
------------------ ---- -------- -------- --------------- -----------------
John M. Gott 2005 $137,246 $ 0 $ 14,925 500,000
2004 $ 82,212 $ 0 $ 13,768 25,000
2003 $ 60,460 $ 0 $ 11,734 10,000
Steven Lamar(c) 2005 $ 63,692 $100,000 $ 0 500,000
Michael L. Maples(c) 2005 $183,653 $ 50,000 $ 0 300,000
----------
(a) Represents signing bonuses of $100,000 to Mr. Lamar and $50,000 to Mr.
Maples
(b) Represents $4,187 in 2005, $4,195 in 2004, and $3,768 in 2003 for payments
of medical insurance and $14,925 in 2005, $9,573 in 2004 and $7,966 in 2003
for personal use of a company-owned automobile.
(c) Messrs. Lamar and Maples became executive officers on June 17, 2005, and
were not our employees prior to such date.
Stock Options. The following table contains information concerning
stock options granted to the named executive officers in 2005.
---------------------------- ---------------------- ---------------------- --------------- ---------------- -----------------
NUMBER OF
SHARES OF PERCENT OF TOTAL
COMMON STOCK OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR SHARE DATE (1) VALUE (2)
---------------------------- ---------------------- ---------------------- --------------- ---------------- -----------------
John Gott 500,000 38.5% $2.50 6/21/2015 $490,000
---------------------------- ---------------------- ---------------------- --------------- ---------------- -----------------
Steven Lamar 500,000 38.5% $2.50 6/21/2015 $490,000
---------------------------- ---------------------- ---------------------- --------------- ---------------- -----------------
Michael L. Maples 300,000 23.0% $2.50 6/21/2015 $294,000
---------------------------- ---------------------- ---------------------- --------------- ---------------- -----------------
(1) One-third of the shares become exercisable on each of 6/21/2006, 6/21/2007,
and 6/21/2008.
(2) The Black-Scholes pricing model was used to determine the grant date value.
Factors used in the Black-Scholes pricing model included: risk-free
interest rate of 4.06%; strike price of $2.50; market price of $2.27;
volatility rate of 22.13%; and a yield rate of 0.00%.
The following table sets forth the value of unexercised "in-the-money"
options held by our named executive officers on December 31, 2005 (the
difference between the aggregate purchase price of all such options held and the
market value of the shares covered by such options on December 31, 2005). Our
named executive officers did not exercise any options in 2005.
5
------------------------------------------------ ---------------------------------- ----------------------------------
NO. OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
12/31/05 (EXERCISABLE/ 12/31/05 (EXERCISABLE/
NAME UNEXERCISABLE) UNEXERCISABLE)
------------------------------------------------ ---------------------------------- ----------------------------------
John M. Gott 35,000 / 500,000 $9,700 / $0
------------------------------------------------ ---------------------------------- ----------------------------------
Steven Lamar 0 / 500,000 $0 / $0
------------------------------------------------ ---------------------------------- ----------------------------------
Michael L. Maples 30,000 / 300,000 $4,850 / $0
------------------------------------------------ ---------------------------------- ----------------------------------
COMPENSATION OF DIRECTORS
We currently provide Directors with an annual grant of options, in an
amount to be determined by the Board of Directors each year, to purchase shares
of our common stock at fair market value on the date of grant. We also pay
non-employee Directors an annual retainer of $12,000; an additional annual
retainer of $12,000 for the Audit Committee Chair; a fee of $350 per day or
portion thereof for a Director's attendance at meetings of the Board of
Directors or committees thereof, but only to the extent in excess of four
meetings per year; and reimbursement of reasonable out-of-pocket expenses
incurred in connection with their duties.
EMPLOYMENT AGREEMENTS
On June 17, 2005, we entered into employment agreements with John M.
Gott, our Chairman and Chief Executive Officer; Steven M. Lamar, our President;
and Michael L. Maples, our Chief Operating Officer and Chief Financial Officer.
Each employment agreement has a term of three years and severance payments equal
to six months of base salary following a termination by us without "cause" or a
termination by the executive for "good reason."
Mr. Gott's agreement provides for an annual salary of $180,000, a grant
of options to purchase up to 500,000 shares of our common stock at $2.50 per
share, and an agreement to grant 500,000 shares of our common stock to Mr. Gott
in January 2006.
Mr. Lamar's agreement provides for an annual salary of $120,000, a
signing bonus of $100,000, a grant of options to purchase up to 500,000 shares
of our common stock at $2.50 per share, and an agreement to grant 500,000 shares
of our common stock to Mr. Lamar in January 2006.
Mr. Maples' agreement provides for an annual salary of $250,000, a
grant of options to purchase up to 250,000 shares of our common stock at $2.50
per share, and an agreement to grant 125,000 shares of our common stock to Mr.
Maples in January 2006.
Each of the options described above were granted on June 21, 2005 and
have a term of ten years. The options vest in one-third increments on each of
the first, second and third anniversaries of the date of the option grant. The
options vest in full upon a "change of control" or termination of the
executive's employment by us without "cause."
On March 10, 2006, we entered into amendments to the employment
agreements with each of Messrs. Gott, Lamar and Maples. The amendments to the
employment agreements provide that the executives are no longer entitled to
receive the grants of our common stock in January 2006 or, to the extent already
6
received, will return such grants to us. The executives agreed to voluntarily
forego the grants to preserve the availability of shares under our 2005 stock
incentive plan, to prevent dilution of our outstanding shares, and to eliminate
the cash required to fund the related withholding and payroll tax liabilities
associated with the grants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Foudree, Luke and Ring are the members of our Compensation
Committee. No member of the Compensation Committee has held any position or been
party to any transaction requiring disclosure in this section.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
-----------------------------------------------------------------------
The following table sets forth certain information as of March 21, 2006
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:
NUMBER OF PERCENT OF
NAME SHARES CLASS(1)
---------------------------------------------------------------- ----------------------- --------------
John M. Gott 7,367,199(2) 15.31%
Steven Lamar 500,000(3) 1.07%
Michael L. Maples 332,925(4) *
Chuck Foudree 60,000(5) *
Robert H. Luke 91,500(6) *
Robert Ring 55,000(5) *
Officers and Directors
as a Group (6 persons) 8,406,624 18.04%
All such shares are owned directly by the named stockholders.
----------
* Less than one percent
(1) Based upon a total of 46,608,310 shares outstanding on March 21, 2006.
(2) Includes (a) an option to purchase 851,022 shares owned by Richard L.
Norton for $.05 per share, or if lower, 50% of the 5-day average trading
price; (b) an option to purchase 10,000 shares at $0.25 per share; and (c)
an option to purchase 25,000 shares at $2.21 per share; and (d) an option
to purchase 500,000 shares at $2.50 per share.
(3) Includes an option to purchase 500,000 shares at $2.50 per share.
(4) Includes (a) an option to purchase 5,000 shares at $0.25 per share; and (b)
an option to purchase 25,000 shares at $2.21 per share; (c) an option to
purchase 250,000 shares at $2.50 per share; and (d) an option to purchase
50,000 shares at $2.27 per share.
(5) Includes an option to purchase 50,000 shares at $2.27 per share.
(6) Includes an option to purchase 10,000 shares at $0.25 per share, an options
to purchase 25,000 shares at $2.21 per share; and an option to purchase
50,000 shares at $2.27 per share.
7
EQUITY COMPENSATION PLANS
On December 31, 2005, we had the following securities issued and
available for future issuance under equity compensation plans:
---------------------------------------------------------------------------------------------------------------------------
(C)
NUMBER OF SECURITIES
(A) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO (B) FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (A))
---------------------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION 2,270,000 shares of $1.62 per share 1,875,000 shares of
PLANS APPROVED BY common stock common stock
SECURITY HOLDERS
---------------------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION 4,141,529 shares of $2.28 per share 0
PLANS NOT APPROVED common stock
BY SECURITY HOLDERS
---------------------------------------------------------------------------------------------------------------------------
TOTAL 6,411,529 shares of $1.70 per share of 1,875,000 shares of
common stock common stock common stock
---------------------------------------------------------------------------------------------------------------------------
For a description of the equity compensation plans not approved by our
security holders (which consist solely of individual compensation arrangements
for the benefit of consultants or pursuant to promotion agreements), see note 9
to our financial statements beginning on page F-1.
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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
(a) We entered into a lease agreement with Bull Creek Ranch LLC on
December 4, 2004. Pursuant to the agreement, we agreed to lease approximately
150,000 square feet of property at 1650 W. Jackson, Ozark, Missouri through
February 28, 2010 at a base rent of $18,750 per month for the first twelve
months and $28,125 thereafter, with adjustments and additional charges set forth
in the agreement. The lease agreement also provided us with an option to
purchase the property for $3,500,000, increasing by 5% for each year after the
first year of the lease term. On February 3, 2005, we purchased the property for
$3,500,000, pursuant to the option to purchase. As a result, the lease agreement
terminated. John Gott, our President, Chief Executive Officer and a Director, is
a manager of, and a member owning a 50% interest in, Bull Creek Ranch LLC. As a
result, Mr. Gott had a material interest in the lease agreement and in our
purchase of the property.
On February 10, 2006, we sold the property at 1650 W. Jackson, Ozark,
Missouri, to FRS, LLC, a Missouri limited liability company, for gross proceeds
of $4,000,000. On February 10, 2006, we entered into a Lease Agreement whereby
8
we agreed to lease our headquarters at 1650 W. Jackson, Ozark, Missouri from
FRS, LLC. Pursuant to the agreement, we agreed to lease the property for ten
years, with a lease rate of $37,500 per month for the first five years and
$43,750 per month thereafter, with adjustments and additional charges set forth
in the agreement. Under the lease, we are responsible for expenses for taxes,
insurance, maintenance and utilities at the property. For accounting and tax
purposes, the lease is to be treated as an operating lease.
The sole member of FRS, LLC is Rick Gregg, who is also a Member owning
a 50% interest in Bull Creek Ranch LLC. As stated above, Bull Creek Ranch, LLC
is a former owner of the property at 1650 W. Jackson, Ozark Missouri, but was
not a party to the purchase and sale, or the lease, described above.
Nevertheless, due to the common ownership of Bull Creek Ranch LLC by Messrs.
Gott and Gregg, FRS, LLC may be deemed as an affiliate of SLS International,
Inc. for certain purposes. We believe that the sale of real estate and lease
described above were consummated on arm's-length terms.
(b) Beginning in 2004 and through May 2005, we paid $2,500 per month
(an aggregate of $45,000) to Mr. Maples to oversee the work by outside
consultants performed in connection with our Sarbanes-Oxley Act compliance
efforts.
(c) On January 4, 2005, we completed a private placement with Baystar
Capital II, L.P. and three other institutional investors, at which time Mr.
Lamar was a Managing Partner of Baystar Capital Management, LLC, which resulted
in Mr. Lamar having an indirect financial interest in the private placement. In
the private placement, we issued our newly designated Series C Convertible
Preferred Stock for an aggregate purchase price of $15 million. The investors
also received five-year warrants to purchase an aggregate of six million shares
of common stock at an exercise price of $6.00 per share, subject to certain
adjustments.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
---------------------------------------
(1) Audit Fees - The aggregate fees billed for professional services
rendered by Weaver & Martin, LLC, for the audit of our financial statements and
review of the financial statements included in our quarterly reports on Form
10-QSB or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for the years ended
December 31, 2005 and 2004 were $218,785 and $110,900, respectively.
(2) Audit-Related Fees - There were no other audit-related fees billed
by Weaver & Martin, LLC for the years ended December 31, 2005 and 2004.
(3) Tax Fees - There were no tax fees billed by Weaver and Martin, LLC
for the years ended December 31, 2005 and 2004.
(4) All Other Fees - There were no other fees billed by Weaver &
Martin, LLC for the years ended December 31, 2005 and 2004.
All services to be provided by Weaver & Martin, LLC are subject to
pre-approval by the Board of Directors, our CEO or CFO. The Sarbanes-Oxley Act
prohibits an issuer from obtaining certain non-audit services from its auditing
firm so as to avoid certain potential conflicts of interest. The Company will
not obtain any of these prohibited services from Weaver & Martin, LLC, and the
Company is able to obtain such services from other service providers at
competitive rates.
9
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
-------------------------------------------
(b) Exhibits. The following documents are filed as exhibits to this
Amendment.
EXHIBIT WHERE LOCATED
------- -------------
Certifications under Section 302 of the Sarbanes- Filed herewith.
Oxley Act of 2002 / SEC Rule 13a-14(a)
Certifications under Section 302 of the Sarbanes- Filed herewith.
Oxley Act of 2002 / SEC Rule 13a-14(a)
Certification under Section 906 of the Sarbanes- Filed herewith.
Oxley Act of 2002 / 18 U.S.C. Section 1350 /
SEC Rule 13a-14(b)
10
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/ M. Maples
----------------------------
M. Maples
(Chief Financial Officer and
Chief Operating Officer)
Date: April 28, 2006
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 April 28, 2006.
SIGNATURE TITLE
--------- -----
/s/ J. Gott Chief Executive Officer and Director
----------------------- (Principal Executive Officer)
J. Gott
/s/ R. Luke, Ph.D. Director
-----------------------
R. Luke, Ph.D.
/s/ M. Maples Chief Financial Officer, Chief Operating Officer
----------------------- and Director
M. Maples
/s/ M. Maples Chief Financial Officer and
----------------------- Chief Operating Officer
M. Maples (Principal Accounting Officer)
11
EXHIBIT INDEX
-------------
NUMBER EXHIBIT WHERE LOCATED
------ ------- -------------
31.1 Certifications under Section 302 of the Filed herewith.
Sarbanes-Oxley Act of 2002 / SEC Rule 13a-14(a)
31.2 Certifications under Section 302 of the Filed herewith.
Sarbanes-Oxley Act of 2002 / SEC Rule 13a-14(a)
32 Certification under Section 906 of the Filed herewith.
Sarbanes-Oxley Act of 2002 / 18 U.S.C. Section
1350 / SEC Rule 13a-14(b)