UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  FORM 10-QSB

(Mark One)

/  /   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the quarterly period ended September 30, 2000

                                       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 2-93124

                               SGI International
       (Exact name of small business issuer as specified in its charter)


         Utah                                                    33-0119035
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                             Identification No.)


          1200 Prospect Street, Suite 325, La Jolla, California 92037
                    (Address of principal executive offices)

                                 (858) 551-1090
                          (Issuer's telephone number)

              (Former name, former address and former fiscal year,
                         if changed since last report)


 Check whether the issuer (1) filed all reports required to be filed by Section
 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
           subject to such filing requirements for the past 90 days.

                              /  / Yes /  / No

The number of shares of common stock, no par value, outstanding as of October
31, 2000, was 70,383,187.

Transitional Small Business Disclosure Format (Check one): /    / Yes /   / No





<PAGE>

                               TABLE OF CONTENTS

                                  FORM 10-QSB

PART I. FINANCIAL INFORMATION

        ITEM 1. FINANCIAL STATEMENTS

        Condensed Consolidated Balance Sheets                           3

        Condensed Consolidated Statements of Operations                 4

        Condensed Consolidated Statement of Stockholders' Deficiency    5

        Condensed Consolidated Statement of Cash FLows                  6

        Notes to Condensed Unaudited Consolidated Financial Statements  7


        ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Introductory Note                                               12

        Results of Operations                                           12

        Liquidity and Capital Resources                                 14


        ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK                                                     16


PART II. OTHER INFORMATION

        ITEM 1. LEGAL PROCEEDINGS                                       16

        ITEM 2. CHANGES IN SECURITIES                                   16

        ITEM 3. DEFAULTS UPON SENIOR DEBT SECURITIES                    18

        ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS     18

        ITEM 5. OTHER INFORMATION                                       18

        ITEM 6. EXHIBITS AND REPORTS ON FORM 8-k                        18


PART III. SIGNATURES                                                    19




                                       2


<PAGE>

                                          SGI INTERNATIONAL AND SUBSIDIARIES
                                         CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                                                      September 30,      December 31,
                                                                                          2000               1999
                                                                                       (Unaudited)

------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
ASSETS
Current assets:
  Cash                                                                                  $  209,518        $  278,391
  Restricted time deposit                                                                        -           402,500
  Trade accounts receivable, less allowance for doubtful accounts
     of $53,314 and $80,320                                                                639,425           661,880
  Costs and estimated earnings in excess of billings on contracts                          439,319            99,580
  Inventories                                                                              413,247           413,716
  Prepaid expenses and other current assets                                                 62,486           102,624
------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                     1,763,995         1,958,691
------------------------------------------------------------------------------------------------------------------------

LFC royalty rights, net                                                                    707,063           942,750
LFC cogeneration project, net                                                              131,605           210,568
Investment in LFC Investees                                                                235,324           266,813
LFC related notes receivable, net                                                          150,000           150,000
LFC process equipment, net                                                                 743,039           355,886
Other assets, net                                                                           25,940            26,757
Property, plant and equipment, net of accumulated
   depreciation of $ 1,311,034 and $1,340,622                                            2,472,980         2,514,595
Goodwill, net of accumulated amortization of $228,602 and $192,653                         251,642           287,591
Interest receivable on notes from stockholders                                              28,286                 -
------------------------------------------------------------------------------------------------------------------------
                                                                                       $ 6,509,874       $ 6,713,651
------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
  Accounts payable                                                                      $  843,744        $  849,140
  Notes payable, net                                                                     1,194,607           881,408
  Accrued salaries, benefits and related taxes                                           1,100,402           770,167
  Billings in excess of costs and estimated earnings on contracts                          432,427           500,407
  Borrowings on line-of-credit                                                                   -           400,000
  Interest payable                                                                         250,121           182,492
  Current maturities of long-term notes payable                                          4,170,386             7,125
  Other accrued expenses                                                                   171,615           188,530
------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                8,163,302         3,779,269

Long-term debt, less current maturities                                                  2,216,484         6,250,386
------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                       10,379,786        10,029,655
------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Minority interest                                                                          458,616           471,000
------------------------------------------------------------------------------------------------------------------------

Stockholders' deficiency:
  Convertible preferred stock                                                                  605               605
  Common stock                                                                          52,982,986        49,890,623
  Paid-in capital                                                                        7,920,418         7,021,879
  Accumulated deficit                                                                  (64,761,537)      (60,229,111)
  Less notes receivable from stockholders                                                 (471,000)         (471,000)
------------------------------------------------------------------------------------------------------------------------
Total stockholders' deficiency                                                          (4,328,528)       (3,787,004)
------------------------------------------------------------------------------------------------------------------------
                                                                                       $ 6,509,874      $  6,713,651
------------------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.
</TABLE>


                                       3

<PAGE>
<TABLE>
                                              SGI INTERNATIONAL AND SUBSIDIARIES
                                       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                         (Unaudited)

                                                                Three months                           Nine months
                                                             ended September 30,                    ended September 30,
                                                           2000                1999                2000             1999
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                <C>                 <C>                <C>
REVENUES:

    Contract revenues                                  $ 1,572,729        $ 1,338,860         $ 3,954,131        $ 2,790,344
-------------------------------------------------------------------------------------------------------------------------------

EXPENSES:
    Cost of revenues                                     1,216,592            795,396           3,028,770          1,710,233
    Engineering, research and development                  199,127            456,443             953,014          1,265,130
    Selling, general and administrative                    996,798            714,211           2,824,505          2,330,678
    Loss on LFC Investees                                    9,410            (4,198)              31,489            (4,198)
    Legal and accounting                                   100,352            144,032             283,309            470,177
    Depreciation and amortization                          201,810            232,927             646,238            775,433
-------------------------------------------------------------------------------------------------------------------------------
Total expenses                                           2,724,089          2,338,811           7,767,325          6,547,453
-------------------------------------------------------------------------------------------------------------------------------
    Loss from operations                                (1,151,360)          (999,951)         (3,813,194)        (3,757,109)

NON-OPERATING INCOME (EXPENSES):
     Interest expense                                     (380,963)          (162,440)           (794,679)          (474,788)
     Other income                                           21,591            122,375              63,063            153,264
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Loss before minority interest in consolidated
     subsidiary                                         (1,510,732)        (1,040,016)         (4,544,810)        (4,078,633)

Minority interest in loss of consolidated subsidiary         3,146                  -              12,384                  -
-------------------------------------------------------------------------------------------------------------------------------
Net loss                                              $ (1,507,586)       $(1,040,016)        $(4,532,426)       $(4,078,633)
-------------------------------------------------------------------------------------------------------------------------------

PREFERRED STOCK DIVIDENDS:
Imputed preferred stock dividends and
       accretion on convertible and
       mandatorily redeemable preferred stock         $          -        $    36,922         $         -        $    36,922
-------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock                   $ (1,507,586)       $(1,076,938)        $(4,532,426)       $(4,115,555)
-------------------------------------------------------------------------------------------------------------------------------
Net loss per common share - basic                     $      (0.02)       $     (0.02)        $     (0.07)       $     (0.12)
-------------------------------------------------------------------------------------------------------------------------------
Weighted average common
     shares outstanding                                 68,229,474         44,402,990          62,518,327         34,781,806
-------------------------------------------------------------------------------------------------------------------------------


See notes to condensed consolidated financial statements.
</TABLE>

                                       4
<PAGE>
<TABLE>
                                              SGI INTERNATIONAL AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY


                                                            (Unaudited)

                                            Convertible                                                                    Total
                                          Preferred Stock       Common Stock         Paid-In   Accumulated     Notes   Stockholders'
                                      ---------------------  -------------------
                                         Shares     Amount   Shares       Amount     Capital     Deficit     Receivable  Deficiency
------------------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>       <C>     <C>         <C>         <C>        <C>           <C>        <C>
Balances at December 31, 1999             60,541    $ 605   54,053,293  $49,890,623 $7,021,879 $(60,229,111) $(471,000) $(3,787,004)
   Issuance of common stock for cash, net                   12,424,635    2,481,422                                       2,481,422
    Exercise of warrants to purchase
        common stock for cash                                   23,000        2,875                                           2,875
    Issuance of common stock for
        notes payable and interest                           1,620,809      401,172                                         401,172
   Issuance of common stock for services                       877,269      168,581                                         168,581
   Conversion of preferred stock             (23)       -      312,386       38,313    (38,313)                                   -
   Imputed discount on convertible debt                                                925,440                              925,440
   Issuance of warrants to purchase
      common stock to non-employees                                                     11,412                               11,412
    Net loss                                                                                      (4,532,426)            (4,532,426)

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

Balances at September 30, 2000            60,518    $ 605   69,311,392  $52,982,986 $7,920,418  $(64,761,537)$(471,000) $(4,328,528)
------------------------------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.
</TABLE>

                                       5

<PAGE>
<TABLE>
                                             SGI INTERNATIONAL AND SUBSIDIARIES
                                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                         (Unaudited)

Nine months ended September 30,                                                      2000                  1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                   <C>
Operating activities:
Net loss                                                                         $(4,532,426)          $(4,078,633)
Adjustments to reconcile net loss to net
      cash used in operating activities:
   Equity in net (income) loss of LFC Investees                                       31,489                (4,213)
   Depreciation and amortization                                                     646,238               775,433
   Common stock issued for services                                                  168,581                39,075
   Non-employee compensation expense on issuance of warrants                          11,412                24,166
   Imputed and accrued interest on warrants issued to note holders                         -                21,107
   Amortization of beneficial conversion feature on debt                             172,079                     -
   Accrued long-term interest expense                                                136,484                     -
   Accrued interest income                                                           (28,286)                    -
   Minority interest in loss of consolidated subsidiary                              (12,384)                    -
   Changes in operating assets and liabilities:
      Restricted time deposit                                                        402,500                     -
      Trade accounts receivable                                                     (317,284)              (67,228)
      Inventories                                                                        469                  (749)
      Prepaid expenses and other current assets                                       40,138                49,714
      Accounts payable                                                                62,829               676,487
      Billings in excess of costs and estimated
         earnings on contracts                                                       (67,980)               65,668
      Accrued salaries, benefits and related taxes                                   330,235               532,931
      Interest payable                                                                83,096                39,304
      Other accrued expenses                                                         (16,915)              228,909
-----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                             (2,889,725)           (1,698,029)
-----------------------------------------------------------------------------------------------------------------------
Investing activities:
Additions to LFC Process equipment                                                  (482,399)              (85,419)
Investment in LFC Investees                                                                -                  (985)
Purchase of property and equipment                                                  (157,269)              (36,643)
Other assets                                                                            (692)               (9,247)
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                               (640,360)             (132,294)
-----------------------------------------------------------------------------------------------------------------------
Financing activities:
   Payments of notes payable                                                          (7,125)               (7,125)
   Payments on line-of-credit                                                       (400,000)                    -
   Proceeds from issuance of debt                                                  1,384,040               825,000
   Proceeds from issuance of common stock                                          2,484,297               984,565
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                          3,461,212             1,802,440
-----------------------------------------------------------------------------------------------------------------------
Net decrease in cash                                                                 (68,873)              (27,883)
Cash at beginning of period                                                          278,391               239,885
-----------------------------------------------------------------------------------------------------------------------
Cash at end of period                                                             $  209,518            $  212,002
-----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:

   Interest paid                                                                  $  384,301            $  393,728
Supplemental disclosure of non-cash activities:
   Conversion of preferred stock                                                      38,313             1,182,958
   Common stock issued for convertible debentures                                          -                68,107
   Common stock issued for debt and interest                                         401,172                     -
   Note Payable issued for current obligation                                         68,225                     -
   Common stock issued for mandatorily redeemable preferred stock                          -             1,253,250
-----------------------------------------------------------------------------------------------------------------------

See notes to condensed consolidated financial statements.
</TABLE>
                                       6

<PAGE>

                       SGI INTERNATIONAL AND SUBSIDIARIES
         NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2000

(1) BUSINESS

SGI International, a Utah corporation, (together with its subsidiaries,
hereinafter referred to as the "Company"), has its corporate office in La Jolla,
California. The Company is primarily in the business of developing and marketing
energy-related technologies, which includes the Liquids From Coal ("LFC")
Process, the Opti-Crude Enhancement Technology ("OCET") Process and the
Asphaltenes Processing technology. The LFC Process is designed to convert and
upgrade low-rank coal to create a higher Btu more efficient fuel to produce
power and simultaneously produce low temperature coal tars, which contain
valuable specialty chemicals. The OCET Process is designed to increase the
resulting product value of oil refineries by deasphalting crude oil as well as
residual oil bottoms ("resid"), which is produced in oil refineries. The
Asphaltenes Processing technology converts unwanted asphaltene by-products of
the OCET Process, as well as the existing solvent deasphalting processes, into
a coal-like fuel. Through Assembly & Manufacturing Systems, Inc. ("AMS"), a
wholly-owned subsidiary, the Company is also in the business of supplying
custom precision automated assembly equipment.

(2) BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of SGI
International and subsidiaries (the "Company") as of September 30, 2000, and for
the three and nine month periods ended September 30, 2000, and 1999, are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-QSB. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements reflect all adjustments, consisting of
only normal recurring adjustments which, in the opinion of management, are
necessary for a fair statement of the consolidated financial position as of
September 30, 2000, and the consolidated results of operations for the three and
nine month periods ended September 30, 2000, and 1999, and cash flows for the
nine month periods ended September 30, 2000, and 1999. The results of operations
for the nine months ended September 30, 2000, are not necessarily indicative of
the results to be expected for the year ending December 31, 2000. For more
complete financial information, these financial statements, and the notes
thereto, should be read in conjunction with the consolidated audited financial
statements for the year ended December 31, 1999, included in the Company's Form
10-KSB filed with the Securities and Exchange Commission.

The accompanying consolidated financial statements are prepared on a going
concern basis and in conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going concern and
realization of assets and settlement of liabilities and commitments in the
normal course of business. The recovery of amounts invested in the Company's
principal assets, the LFC Process and OCET Process assets, is dependent upon the
Company's ability to adequately fund its on-going development operations and
eventual commercialization of these technologies. Furthermore, the ability to
successfully bring both the LFC Process and OCET Process technologies to
commercialization will ultimately depend on the Company's ability to attract
sufficient additional equity, debt or other third-party financing.

Success in commercialization of the LFC Process and OCET Process is dependent in
large part upon the ability to enter into satisfactory arrangements with other
partners, financiers or customers and upon the ability of these third parties to
perform their responsibilities. The resources required to profitably develop,
construct and operate an LFC plant are likely to include hundreds of millions of
dollars, and expertise in major plant development and operations. There can be
no assurance any licenses, joint

                                       7

<PAGE>

venture agreements or other arrangements will
be available on acceptable terms, if at all; that any revenue will be derived
from such arrangements; or that, if revenue is generated, any of said
arrangements will be profitable to the Company. If the Company is unsuccessful
in its attempts to license the LFC Process or OCET Process, or if such third
parties are unsuccessful in profitably developing and operating LFC plants, the
planned business and operations of the Company will likely not succeed and the
Company would not be able to recover the carrying value of the long-lived assets
related to either the LFC Process or OCET Process.

The Company had negative working capital of approximately $6.4 million and an
accumulated deficit of $64.8 million at September 30, 2000. These factors and
the Company's recurring losses from continuing operations, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company is currently seeking additional financing through public or private
sales of its securities to fund working capital requirements.

The Company will also seek funding through additional strategic partnerships,
joint ventures or similar arrangements to commercialize the technologies. There
can be no assurance that any collaborative financing arrangements through a
joint venture, and/or with strategic partners, will be available when needed, or
on terms acceptable to the Company. If adequate funds are not available, the
Company may be required to curtail or terminate one or more of its operating
activities. The Company is engaged in continuing negotiation to secure
additional capital and financing, and while management believes funds can be
raised, there is no assurance that their efforts will be successful. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

(3) FINANCING TRANSACTIONS

On July 11, 2000, the Company in accordance with its related service agreements
issued three warrants to purchase an aggregate of 225,000 common shares at
$0.22 per share to three officer/directors of the Company. The exercise price
was not lower than the closing bid price on the grant date. The warrants are
exercisable one year from the date of grant and expire on December 31, 2005.
These securities were issued pursuant to the exemptions provided by Section
4(2) of the Securities Act and Regulation D. Investment representations were
obtained and legends were placed on the certificates.

During the three month period ended September 30, 2000, the Company raised
approximately $438,000 through the issuance of approximately 2,630,000
restricted common shares to accredited investors. These securities were issued
pursuant to the exemptions provided by Section 4(2) of the Securities Act and
Regulation D. Investment representations were obtained and legends placed on the
certificates.

During the three month period ended September 30, 2000, the Company in
accordance with two agreements for consulting and private placement services,
paid cash of approximately $28,000 and issued 417,552 shares of restricted
common stock valued at approximately $73,000, for services rendered. The
securities were issued pursuant to the exemptions provided by Section 4(2) of
the Securities Act and Regulation D. Investment representations were obtained
and legends placed on the certificates.

Effective August 1, 2000, the Company exchanged for current obligations an
unsecured 9% note payable with a face value of $68,225 due on demand after
September 30, 2000, for equal value. Interest on the note accrues from April 1,
2000 and shall continue until paid in full. As of September 30, 2000 demand on
the note had not been made.

During the month of July, 2000, the Company issued for cash three unsecured 9%
notes payable with an aggregate face value of $196,235. Both the principal and
interest on the notes are due one year from the date of issuance and may only be
paid off through the issuance of 1,195,043 shares of restricted common stock.
The underlying shares of common stock do not have any registration rights.
These securities were

                                       8
<PAGE>

issued pursuant to the exemptions provided by Section 4(2) of the Securities
Act and Regulation D. Investment representations were obtained from the
accredited investors.

On August 16, 2000, the Company issued for cash an unsecured 9% note payable
with a face value of $136,000. Both the principal and interest on the note are
due on February 16, 2001 and may only be paid off through the issuance of
967,457 shares of restricted common stock. Pursuant to the terms of the note,
the Company granted the investor piggy back registration rights for the
underlying common shares. These securities were issued pursuant to the
exemptions provided by Section 4(2) of the Securities Act and Regulation D.
Investment representations were obtained from the accredited investor.

During late July and September of 2000, the Company issued for cash three
unsecured 9% notes payable with an aggregate face value of $270,100. Both the
principal and interest on the notes are due one year from the date of issuance
and may only be paid off through the issuance of 2,153,464 shares of restricted
common stock. Pursuant to the terms of the note the Company granted the
investors piggy back registration rights for the underlying common shares. These
securities were issued pursuant to the exemptions provided by Section 4(2) of
the Securities Act and Regulation D. Investment representations were obtained
from the accredited investors.

During the three month period ended September 30, 2000, the Company issued for
cash three unsecured 9% notes payable with an aggregate face value of $256,000
to one accredited investor. The notes are payable upon 30 days written demand
beginning one year following their issuance date. Both the principal and accrued
interest thereon may be paid in cash or, at the option of the Company, on the
first anniversary by issuing 2,728,097 shares of restricted common stock. The
security was issued pursuant to the exemptions provided by Section 4(2) of the
Securities Act and Regulation D. Investment representations were obtained from
the accredited investor.

In conjunction with the issuance of the various convertible notes issued during
the three months ended September 30, 2000, the Company recorded the issuance of
the notes payable net of a $913,512 beneficial conversion feature (see note 5).
This beneficial conversion feature will be amortized over the life of each note
and result in a non-cash interest charge. As of September 30, 2000, the Company
had amortized approximately $160,000 of the beneficial conversion feature.

(4) NET LOSS PER SHARE

Basic net loss per share is computed based on the weighted average number of
common shares outstanding and includes preferred stock dividends. Diluted net
loss per share is not presented since the effect of shares issuable upon the
assumed conversion of preferred stock and convertible debentures and the assumed
exercise of outstanding stock options and warrants would be anti-dilutive. For
purposes of computing net loss per share, preferred stock dividends include
"imputed dividends" for preferred stock issued with a non-detachable beneficial
conversion feature near the date of issuance. Imputed dividends represent the
aggregate difference between conversion price and the fair market value of the
common stock as of the date of issuance of the preferred stock.

(5) COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Inventories

Inventories are stated at the lower of cost or market, using the first-in,
first-out cost method. Substantially, all inventories represent finished goods
held for use in operations.

                                       9
<PAGE>

<TABLE>

Property and Equipment

                                                    September 30,     December 31,
                                                      2000              1999
-------------------------------------------------------------------------------------
  <S>                                            <C>                 <C>
   ENCOAL LFC Plant                              $  2,121,000        $ 2,121,000
   Laboratory equipment                             1,032,000          1,020,000
   Machinery and equipment                            140,000            136,000
   Computer equipment                                 254,000            400,000
   ENCOAL projects under construction                 113,000                  -
   Office furniture and fixtures                       70,000            125,000
   Leasehold improvements                              54,000             54,000
-------------------------------------------------------------------------------------
                                                    3,784,000          3,856,000
   Less accumulated depreciation                   (1,311,000)        (1,341,000)
-------------------------------------------------------------------------------------
       Net property and equipment                $  2,473,000       $  2,515,000
-------------------------------------------------------------------------------------
</TABLE>

Notes Payable

During the period ended September 30, 2000, the Company issued various notes
payable (as more fully described in Note 3) which contained a beneficial
conversion feature. The Company in accordance with generally accepted accounting
principles has recognized this beneficial conversion feature by allocating a
portion of the proceeds to additional-paid-in-capital and as an offset to the
notes payable. Furthermore, the recorded beneficial conversion
feature resulting from the allocation of the proceeds, will be recognized by the
Company as interest expense over the period ending on the note's earliest
conversion date, which in this case is primarily over a one year period. The
beneficial conversion feature on these notes represents the aggregate difference
between the conversion price and the fair market value of the common stock as of
the date of issuance of the notes payable. During the three month period ended
September 30, 2000, the Company amortized approximately $160,000 of the
beneficial conversion feature. The Company also recorded an additional $12,000
of interest expense related to the beneficial conversion feature associated with
the payment of the stated interest on the notes payable.

<TABLE>

                                             September 30,     December 31,
                                                 2000              1999
-----------------------------------------------------------------------------
  <S>                                        <C>                  <C>
   Notes payable                             $ 1,947,968          $ 881,408
   Beneficial coversion feature                 (753,361)                 -
-----------------------------------------------------------------------------
         Notes payable, net                   $1,194,607          $ 881,408
-----------------------------------------------------------------------------
</TABLE>


(6) SEGMENT REPORTING

The Company manages its segments based on strategic business units that are in
turn based along technological lines. These strategic business units offer
products and services to different markets in accordance with their underlying
technology. Accordingly, the Company's three business segments are centered on
the operations associated with the LFC Process, the OCET Process and Automated
Assembly and Manufacturing Systems. The Company's operations are primarily
located in the United States, however, through its joint venture with MLFC, a
subsidiary of Mitsubishi Corp., the Company's LFC Process technology will
continue to be marketed on an international basis. The Company evaluates
performance of each segment based on profit or loss from operations before
income taxes. The Company has no significant intersegment sales.
Reclassification of certain items has been made to the 1999 schedule to conform
to the 2000 presentation.

                                       10
<PAGE>

<TABLE>

Three months ended                      Automated           LFC             OCET
September 30                             Assembly         Process         Process        Corporate          Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                 <C>            <C>              <C>           <C>
2000

Revenues                                $ 1,572,000         $      -        $ 1,000          $     -      $ 1,573,000
Net income (loss)                           131,000         (608,000)      (105,000)        (926,000)      (1,508,000)
Equity in operations of investee                  -           (9,000)             -                -          (9,000)
Depreciation & Amortization                  22,000          136,000         39,000            5,000          202,000
Engineering, research and
  consulting expenditures                         -          106,000         79,000           14,000          199,000
Interest expense                                  -                -              -          381,000          381,000

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

1999

Revenues                                $ 1,086,000       $  250,000       $  1,000        $   2,000      $ 1,339,000
Net income (loss)                           (87,000)      (322,000)        (792,000)      (1,040,000)
Equity in operations of investee                  -            4,000              -                -            4,000
Depreciation & Amortization                  29,000          112,000         88,000            3,000          232,000
Engineering, research and
   consulting expenditures                        -          224,000        232,000                -          456,000
Interest expense                                  -                -              -          162,000          162,000
-----------------------------------------------------------------------------------------------------------------------


Nine months ended                       Automated           LFC             OCET
September 30                            Assembly          Process         Process        Corporate          Total
-----------------------------------------------------------------------------------------------------------------------

2000

Revenues                                $3,949,000          $      -       $  5,000          $     -       $3,954,000
Net income (loss)                          288,000        (1,963,000)      (413,000)      (2,444,000)      (4,532,000)
Equity in operations of investee                 -           (31,000)             -                -          (31,000)
Depreciation & Amortization                 85,000           411,000        138,000           12,000          646,000
Engineering, research and
   consulting expenditures                       -           583,000        316,000           54,000          953,000
Interest expense                             1,000                 -              -          794,000          795,000

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

1999

Revenues                                $2,019,000        $  750,000       $ 21,000          $     -      $ 2,790,000
Net loss                                  (328,000)         (181,000)      (999,000)      (2,571,000)      (4,079,000)
Equity in operations of investee                 -             4,000              -                -            4,000
Depreciation & Amortization                 87,000           415,000        262,000           11,000          775,000
Engineering, research and
   consulting expenditures                       -           515,000        750,000                -        1,265,000
Interest expense                             1,000                 -              -          474,000          475,000

-----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
                                            September 30,         December 31,
Total Assets by Segment                         2000                  1999
----------------------------- ---------- ---------------- --- -----------------
<S>                                         <C>                    <C>
Identifiable assets, net

   Automated Assembly                       $ 1,649,000            $1,414,000
   LFC Process                                4,552,000             4,425,000
   OCET Process                                 165,000               281,000
   Corporate                                    144,000               594,000
----------------------------- ---------- ---------------- --- -----------------
Total                                       $ 6,510,000            $6,714,000
----------------------------- ---------- ---------------- --- -----------------
</TABLE>
                                       11

<PAGE>

(7) RELATED PARTY TRANSACTIONS

On July 14, 2000, the Company issued for cash a $25,000 unsecured 9% note
payable to one outside director. The note is payable upon 30 days written demand
after January 14, 2001. Both the principal and accrued interest thereon may be
paid in cash or at the option of the Company, on January 14, 2001, by issuing
147,059 shares of restricted common stock. The security was issued pursuant to
the exemptions provided by Section 4(2) of the Securities Act and Regulation D.
Investment representations were obtained.

(8) RECLASSIFICATION

Certain prior period amounts have been reclassified to conform to the current
period presentation. These changes had no impact on previously reported results
of operations, cash flows or stockholders' deficiency.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

                               INTRODUCTORY NOTE

This Quarterly Report on Form 10-QSB contains statements relative to (i)
projections, (ii) estimates, (iii) future research plans and expenditures, (iv)
potential collaborative arrangements, (v) opinions of management and (vi) the
need for and availability of additional financing which may be considered
"forward-looking statements."

The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions regarding the Company's business' and
technologies, which involve judgments with respect to, among other things,
future scientific, economic and competitive conditions, and future business
decisions, as well as risk factors detailed from time to time in the Company's
Securities and Exchange Commission reports (including this Form 10-QSB) and are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated will be realized and actual results may differ materially.

Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Therefore,
historical results and percentage relationships will not necessarily be
indicative of the operating results of any future period.

                             RESULTS OF OPERATIONS

Net Loss per Common Share. Basic net loss per common share for the three and
nine month periods ended September 30, 2000, remained the same and decreased
approximately $0.05 per share, respectively, over the same prior year periods.
The decrease in basic net loss per share for the nine month period ended
September 30, 2000 is primarily attributable to an increase in the weighted
average number of common shares outstanding as the net loss for both the three
and nine month periods increased. The net loss for the three and nine month
periods ended September 30, 2000, increased approximately 45% and 11%,
respectively, over the same prior year periods.

                                       12
<PAGE>

Revenues and Gross Margin. Revenues and cost of sales are primarily attributable
to Assembly and Manufacturing Systems, Inc. (AMS) and are recorded using the
percentage of completion method. Revenues at AMS for the three and nine month
periods ended September 30, 2000, increased 45% and 96% respectively over the
same prior year periods. Gross margin as a percentage of sales for both the
three and nine month periods ended September 30, 2000, remained near normal
operating levels and are anticipated to remain at these levels throughout the
remainder of the fiscal year. Gross margin as a percentage of sales for the
three month period ended September 30, 2000, was 23%, compared to 27% over the
same prior year period. Gross margins for the nine month period ended September
30, 2000, was 23% compared to 16% over the same prior year period. Gross
margins may vary in any given period as a result of the variations in
profitability of contracts for large orders of automated production systems or
specialty machines, as well as efficiencies related to the overall utilization
of AMS' manufacturing resources.

The Company attributes the increase in revenues and improved gross margins
primarily to strong sales to the medical industry which continues from the prior
year and renewed sales to the automotive industry. The Company anticipates sales
to both these industries to exceed prior year levels based on current order
activity. The Company anticipates that sales to the high-tech industry
(electronics and communications) sector will continue to be approximately equal
to the prior year. AMS tries to maintain a steady growth in revenues by
marketing to at least three different industries, specifically, medical,
automotive and high-tech.  However, it cannot guarantee securing sufficient
contracts from the industries to maintain its growth.  Consequently, AMS may
experience significant fluctuations in its future annual and quarterly
operating results.

For the three and nine month periods ended September 30, 1999, the Company
received net revenues of $250,000 and $750,000, respectively, from its services
agreement with LFC Tech, it's joint venture with MLFC. No additional revenues
are anticipated from the services agreement in 2000, thereby offsetting the
increase in revenues from AMS.

Engineering, Research and Development Expenses. Engineering, research and
development expenses for the three and nine month periods ended September 30,
2000, decreased 56% and 25%, respectively, over the same prior year periods. The
decrease for both the three and nine month periods is primarily attributable to
a decrease of 66% and 58% respectively, in expenses on the OCET Process as the
Company has shifted its laboratory resources towards increasing the value of CDL
produced from the LFC Process. Work on increasing the value of CDL is expected
to continue throughout the remainder of the year.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three and nine month periods ended September 30,
2000, increased 40% and 21%, respectively, over the same prior year periods. The
increase is primarily attributable to the carrying costs associated with the
ENCOAL LFC plant which the Company acquired in late 1999. Selling, general and
administrative expenses for AMS for both the three and nine month periods
remained relatively unchanged over the same prior year periods.

Loss on Investment in LFC Investee. The Company's share of the losses for its
joint venture in LFC Technologies (LFC Tech) for the three and nine months ended
September 30, 2000, increased over the same prior year period. The increase is
primarily attributable to the amortization of assets which LFC Tech acquired in
late 1999.

                                       13
<PAGE>

Legal and Accounting Expenses. Legal and accounting expenses for the three and
nine month periods ended September 30, 2000, decreased 30% and 40%,
respectively, over the same prior year periods. The decrease for both the three
and nine month periods is related primarily to a reduction in legal and
accounting salaries and the settlement of various lawsuits to which the Company
and AMS were parties in 1999.

Depreciation and Amortization Expenses. Depreciation and amortization expense
for the three and nine month periods ended September 30, 2000, decreased 13% and
17%, respectively over the same prior year periods due primarily to a
non-recurring charge of approximately $80,000 which occurred in the first
quarter of 1999 and a significant portion of OCET Corporation's fixed assets
becoming fully depreciated. Partially offsetting this decrease is the Company's
acquisition of various LFC related assets late in 1999. AMS' depreciation
expense for both the three and nine month periods remained relatively unchanged
over the same prior year periods.

Interest Expense. Interest expense for the three and nine month periods ended
September 30, 2000, increased 135% and 67%, respectively, over the same prior
year periods. The increase is due to the addition of approximately $2.0 million
in long-term debt associated with the purchase of the ENCOAL LFC plant and
various LFC assets in late 1999 and a non-cash interest charge of approximately
$172,000 related to the beneficial conversion feature of various convertible
notes payable primarily issued during the three month period ended September 30,
2000.

Other Income. Other income for the three and nine month periods ended September
30, 2000, decreased 82% and 59% respectively, over the same prior year periods.
The decrease for both the three and nine month periods is related to the receipt
of a payment in 1999 in settlement of a lawsuit.


                        LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2000, the Company had assets totaling $6.5 million and a
working capital deficiency of $6.4 million. This is compared to total assets of
$6.7 million and a working capital deficiency of $1.8 million as of December 31,
1999. The current maturities of long-term debt of approximately $4.2 million due
September 30, 2001 and current notes payable primarily contribute to the change
in the working capital deficiency between September 30, 2000 and December 31,
1999. The Company anticipates continued operating losses over the next twelve
months and has both short-term and long-term liquidity deficiencies as of
September 30, 2000.

Other short-term liquidity requirements are expected to be satisfied from
existing cash balances, proceeds from the sale of future equity securities or
other collaborative arrangements. Negotiations are on-going for the public and
private placement of equity securities, the proceeds of which are intended to be
used to satisfy the short-term liquidity deficiency. In the event that the
Company is unable to finance operations at the current level, various
administrative activities would be curtailed and certain research and
development efforts would be reduced. The Company will not be able to sustain
operations if it is unsuccessful in securing sufficient financing and/or
generating revenues from operations.

The Company had long-term liquidity deficiencies at September 30, 2000. Over the
long-term, the Company will require substantial additional funds to maintain and
expand its research and development activities and ultimately to commercialize,
with or without the assistance of corporate partners, any of its proposed
technologies. Although there are no commitments, the Company believes the
long-term liquidity deficiency will be satisfied through a combination of future
equity sales, increased positive cash flows from operations, and research or
other collaborative agreements, until such time, if ever, as the
commercialization of the Company's technologies result in positive cash
flows. The Company is seeking additional funds through the financing, sale and
operations of the ENCOAL LFC plant and through

                                       14
<PAGE>

collaborative or other arrangements with larger well-capitalized
companies, under which such companies may provide additional capital to the
Company in exchange for exclusive or non-exclusive licenses or other rights to
certain commercial projects, technologies and products the Company is
developing. Although the Company is presently engaged in discussions with a
number of suitable candidate companies, there can be no assurance that an
agreement or agreements will arise from these discussions in a timely manner,
or at all, or that revenues that may be generated thereby will offset operating
expenses sufficiently to reduce the Company's short-term or long-term funding
requirements.

The use of cash from operating activities is essentially attributable to the
Company's net loss of approximately $4.5 million and $4.1 million for the nine
month periods ended September 30, 2000, and 1999, respectively. These losses
were incurred primarily as a result of the Company's administrative and
technology development activities.

Cash used in operating activities for the nine month period ended September 30,
2000, increased 70% over the same prior year period. The Company's activities
associated with the holding costs of the ENCOAL LFC Plant are the primary reason
for this increase. In the fourth quarter of 1999 the Company acquired various
LFC related assets, including the ENCOAL LFC Plant. As a result of this
acquisition, the Company originally anticipated operating expenses associated
with maintaining the ENCOAL LFC Plant in idle condition at approximately
$350,000 in 2000. As of September 30, 2000, the Company had incurred
approximately $650,000 of expenses and anticipates incurring an additional
$100,000 of expenses each month until it concludes a financing/sale as described
below.

The Company's investing activities amounted to a use of funds of approximately
$640,000 a 384% increase over the same prior year period. This use of funds is
primarily related to the acquisition of LFC Process related equipment and
equipment under construction which is required for the ENCOAL LFC Plant to
resume operations once an investor, if any, is obtained.

In January of 1999 the Company and MLFC a wholly-owned subsidiary of Mitsubishi
Corporation formed LFC Technologies, LLC ("LFC Tech"). Accordingly, the Company
may be required from time to time to make capital contributions to LFC Tech. The
Company is required to contribute one-half of any such required capital
contributions. In the prior year, in accordance with the Amended Services
Agreement between the Company and LFC Tech, the Company received approximately
$750,000 of net revenues through the nine month period ended September 30, 1999.
This agreement was amended subsequent to October 1999, and the Company will not
receive any additional funds pursuant thereto in 2000. The Company does not
anticipate that any significant contributions to LFC Tech will be required in
2000.

In 2000 the Company is projecting capital expenditures for equipment at OCET to
remain consistent with the prior year and an increase in capital expenditures at
AMS of approximately $300,000 to improve manufacturing capabilities and
efficiencies. In addition, the Company is now anticipating that it will
additionally expend approximately $200,000 in LFC Process related equipment
through the end of 2000. Further, the Company intends to obtain financing for
the ENCOAL LFC Plant currently estimated at $13.7 million. The financing is for
capital improvements and start-up expenditures which are necessary to set the
plant on more of a commercial footing and to position it as a reference plant
for potential future commercial LFC facilities. Other than the capital
improvements previously discussed, the Company as of September 30, 2000, does
not have any material requirements or commitments for capital expenditures. The
amount of funds used for investing activities in a given period are directly
related to development requirements of the Company's technologies and funds
availability.

The Company's net financing activities raised approximately $3.5 million and
$1.8 million for the nine month period ended September 30, 2000, and 1999,
respectively. These funds were raised primarily through the private placement of
debt and equity securities. Offsetting the $2.5 million of funds raised

                                       15

<PAGE>
during the nine month period was the pay-off and termination of the Company's
$400,000 line-of-credit which was collateralized by a $402,500 certificate of
deposit which matured in May 2000. The Company is actively seeking a new line-
of-credit to provide working capital to AMS and support its current and
anticipated growth in business activity.

As stated earlier the Company intends to obtain financing related to the ENCOAL
LFC Plant estimated at $13.7 million. The Company believes, due to the plant's
special nature, that financing for these improvements will not likely be
obtained through conventional methods and that a strategic partner or financier
capable of utilizing Internal Revenue Code section 29 tax credits will be
required. Due to the tax laws surrounding the realization of these tax credits
the financing of the ENCOAL LFC Plant's required improvements will mostly
likely require that the Company sell the ENCOAL LFC Plant directly to the
financier in order facilitate the transaction. Following any such transaction
the Company expects it will continue to be involved with various aspects of the
project, including in the supervision of the improvements. In this case the
Company will not be required to make any of the improvements discussed earlier
or assume the repayment of the financing associated with the improvements.
There is no assurance that the Company will be able to obtain this financing,
or if available, the terms will be acceptable.

The amount of money raised during a given period is dependent upon financial
market conditions, technological progress and the Company's projected funding
requirements. The Company anticipates that future financing activities will be
influenced by the aforementioned factors. Significant future financing
activities will be required to fund future operating and investing activities
and to maintain debt service. While the Company is engaged in continuing
negotiations to secure additional capital and financing, there is no assurance
such funding will be available or if received will be adequate.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        [NONE]


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are from time to time involved in litigation
arising in the ordinary course of their respective businesses. On August 23,
2000, the Company filed a lawsuit against Earthco in San Diego County Superior
Court. The lawsuit seeks as yet to be determined damages for breach of an
agreement by which the Company acted as a finder for 10% of Earthco's interest
in a coal fines briquetting project. The Company alleges that it fulfilled its
obligation under the agreement and Earthco failed to compensate the Company for
services rendered pursuant thereto.  Earthco has denied all allegations and the
parties are proceeding towards discovery.

ITEM 2. CHANGES IN SECURITIES

On July 11, 2000, the Company in accordance with its related service agreements
issued three warrant to purchase an aggregate of 225,000 common shares at $0.22
per share to three officer/directors of the Company. The exercise price was not
lower than the closing bid price on the grant date. The warrants are exercisable
one year from the date of grant and expire on December 31, 2005. These
securities were issued pursuant to the exemptions provided by Section 4(2) of
the Securities Act and Regulation D. Investment representations were obtained
and legends were placed on the certificates.

During the three month period ended September 30, 2000, the Company raised
approximately $438,000 through the issuance of approximately 2,630,000
restricted common shares to accredited investors. These securities were issued
pursuant to the exemptions provided by Section 4(2) of the Securities Act and
Regulation D. Investment representations were obtained and legends placed on the
certificates.

                                       16

<PAGE>
During the three month period ended September 30, 2000, the Company in
accordance with two agreements for consulting and private placement services,
paid cash of approximately $28,000 and issued 417,552 shares of restricted
common stock valued at approximately $73,000, for services rendered. The
securities were issued pursuant to the exemptions provided by Section 4(2) of
the Securities Act and Regulation D. Investment representations were obtained
and legends placed on the certificates.

Effective August 1, 2000, the Company exchanged for current obligations an
unsecured 9% note payable with a face value of $68,225 due on demand after
September 30, 2000, for equal value. Interest on the note accrues from April 1,
2000 and shall continue until paid in full. As of September 30, 2000 demand on
the note had not been made.

During the month of July, 2000, the Company issued for cash three unsecured 9%
notes payable with an aggregate face value of $196,235. Both the principal and
interest on the notes are due one year from the date of issuance and may only be
paid off through the issuance of 1,195,043 shares of restricted common stock.
The underlying shares of common stock do not have any registration rights. These
securities were issued pursuant to the exemptions provided by Section 4(2) of
the Securities Act and Regulation D. Investment representations were obtained
from the accredited investors.

On August 16, 2000, the Company issued for cash an unsecured 9% note payable
with a face value of $136,000. Both the principal and interest on the note are
due on February 16, 2001 and may only be paid off through the issuance of
967,457 shares of restricted common stock. Pursuant to the terms of the note,
the Company granted the investor piggy back registration rights for the
underlying common shares. These securities were issued pursuant to the
exemptions provided by Section 4(2) of the Securities Act and Regulation D.
Investment representations were obtained from the accredited investor.

During late July and September of 2000, the Company issued for cash three
unsecured 9% notes payable with an aggregate face value of $270,100. Both the
principal and interest on the notes are due one year from the date of issuance
and may only be paid off through the issuance of 2,153,464 shares of restricted
common stock. Pursuant to the terms of the note the Company granted the
investors piggy back registration rights for the underlying common shares. These
securities were issued pursuant to the exemptions provided by Section 4(2) of
the Securities Act and Regulation D. Investment representations were obtained
from the accredited investors.

During the three month period ended September 30, 2000, the Company issued for
cash three unsecured 9% notes payable with an aggregate face value of $256,000
to one accredited investor. The notes are payable upon 30 days written demand
beginning one year following their issuance date. Both the principal and accrued
interest thereon may be paid in cash or, at the option of the Company, on the
first anniversary by issuing 2,728,097 shares of restricted common stock. The
security was issued pursuant to the exemptions provided by Section 4(2) of the
Securities Act and Regulation D. Investment representations were obtained from
the accredited investor.

In conjunction with the issuance of the various convertible notes issued during
the three months ended September 30, 2000, the Company recorded the issuance of
the notes payable net of a $913,512 beneficial conversion feature (see note 5).
This beneficial conversion feature will be amortized over the life of each note
and result in a non-cash interest charge. As of September 30, 2000, the Company
had amortized approximately $160,000 of the beneficial conversion feature.

ITEM 3. DEFAULTS UPON SENIOR DEBT SECURITIES

[NONE]

                                       17
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

A Special Meeting of Stockholders was held on September 18, 2000. At the Special
Meeting stockholders of SGI International were asked to vote on an amendment to
the Articles of Incorporation to increase the number of authorized shares from
75,000,000 to 125,000,000. The vote on the amendment to the Articles of
Incorporation was as follows:

<TABLE>
                               Voting Results

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

                                    Votes                Percent

          -------------- ------ -------------- ------- -------------
         <S>                      <C>                     <C>
          For                      53,581,309              97%
          Against                   1,376,393               3%
          Abstain                      47,487               *%
          -------------- ------ -------------- ------- -------------

         * Less than 1%
</TABLE>


ITEM 5. OTHER INFORMATION

SGI International ("SGI") and subsidiaries of AEI Resources, specifically,
Bluegrass Coal Development Company and Americoal Development Company have
amended effective October 31, 2000, (the "Fifth Amendment") certain terms and
conditions of the Amended and Restated Acquisition Agreement (the "Acquisition
Agreement") between the parties, dated December 9, 1999. The Fifth Amendment
essentially provides SGI with an extension of the October 31, 2000, date to
November 30, 2000, in which to satisfy various terms and conditions more fully
described in the Acquisition Agreement. All other terms and conditions of the
Acquisition Agreement remain in full force and effect. A copy of the Fifth
Amendment is attached hereto as Exhibit 4.6 and is incorporated herein by
reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

4.1 Form of Restricted Stock Subscription Agreement (1)
4.2 Form of Promissory Note with Registration Rights (2)
4.3 Form of Promissory Note without Registration Rights(2)
4.4 Form of Promissory Note payble in cash or stock(2)
4.5 Form of July 2000 Warrant(2)
4.6 Fifth Amendment to Amended and Restated Acquisition Agreement Among SGI
etal.(2)
27.1 Financial Data Schedule (2)

  (1) Incorporated by reference to report on Form 10-Q (File No. 2-93124)
        ending September 30, 1999.
  (2) Filed herewith.

(b) Reports on 8-K

On October 10, 2000, the Company reported on its Current Report on form 8-K,
filed with the Securities and Exchange Commission, that it had amended effective
September 30, 2000 (the "Fourth Amendment"), certain terms and conditions of the
Amended and Restated Acquisition Agreement (the "Acquisition Agreement") between
itself and certain subsidiaries of AEI Resources, dated December 9, 1999. The
Fourth Amendment essentially provides SGI with an extension of the September 30,
2000, date to October 31, 2000, in which to satisfy various terms and conditions
more fully described in the Acquisition Agreement.

                                       18
<PAGE>


PART III. SIGNATURES

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 and on the dates indicated.

SGI INTERNATIONAL

/s/ MICHAEL L. ROSE November 10, 2000
------------------------------------
Michael L. Rose,
President and Chief Executive Officer



/s/ GEORGE E. DONLOU November 10, 2000
------------------------------------
George E. Donlou
Vice President Finance and Controller

                                       19