UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                  FORM 10-Q

(Mark One)

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1997

                                      or

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

                         Commission File Number 2-93124

                               SGI International
              (Exact name of registrant 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)

                                   (619) 551-1090
                  Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                                            [ X ] Yes   [ ] No

The number of shares of Common Stock, no par value, outstanding as of October
31, 1997, was 8,087,163.

<PAGE>

                              TABLE OF CONTENTS

                                 FORM 10-Q


PART I.   FINANCIAL INFORMATION

          ITEM 1.   FINANCIAL STATEMENTS

          Condensed Consolidated Balance Sheets                            3

          Condensed Consolidated Statements of Operations                  4

          Condensed Consolidated Statement of Stockholders' Equity         5

          Condensed Consolidated Statements of Cash Flows                  6

          Notes to Condensed Consolidated Financial Statements             7

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

          Overview                                                         9

          Results of Operations                                            10

          Liquidity and Capital Resources                                  12


PART II.  OTHER INFORMATION

          ITEM 1.   LEGAL PROCEEDINGS                                      13

          ITEM 2.   CHANGES IN SECURITIES                                  13

          ITEM 5.   OTHER INFORMATION                                      13

          ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                       14


PART III. SIGNATURES                                                       15

<PAGE>

SGI INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
<TABLE>


                                            September 30,       December 31,
                                                1997                1996
                                          ____________________________________
                                            (Unaudited)
<S>                                       <C>                 <C>
ASSETS
Current assets:
  Cash                                    $    147,813        $    740,018
  Time deposit                                 402,500             402,500
  Receivable from
    TEK-KOL Partnership                         53,960              24,431
  Trade accounts receivable                    952,977             888,254
  Costs and estimated earnings in
    excess of billings on contracts             87,406             113,130
  Inventories                                   66,459              68,289
  Prepaid expenses and other
    current assets                             338,319              58,545
                                          ___________________________________
Total current assets                         2,049,434           2,295,167

LFC Process related assets:
  Notes receivable                             304,903             304,903
  Royalty rights, net                        1,649,813           1,885,500
  LFC Cogeneration project, net                447,458             526,421
  Investment in TEK-KOL Partnership            456,203             464,163
  Australia LFC project, net                   123,076             144,795
  Other technological assets                    32,507              27,742
                                          ___________________________________
                                             3,013,960           3,353,524

Property and equipment, net                    719,142             548,601
Goodwill, net                                  395,437             431,386
                                          ___________________________________
                                          $  6,177,973        $  6,628,678
                                          ===================================


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                        $    610,338        $    444,436
  Borrowings on line-of-credit                 400,000             300,000
  Billings in excess of costs and
    estimated earnings on contracts            201,220             387,892
  Current maturities of long-term
    notes payable                            4,194,875           4,216,500
  Accrued salaries, benefits
    and related taxes                          343,256             124,942
  Payable to TEK-KOL Partnership               200,000              83,252
  Interest payable                             654,212             529,183
  Other accrued expenses                       422,284             224,149
                                          ___________________________________
Total current liabilities                    7,026,185           6,310,354

Long-term notes payable,
    less current maturities                    116,625             123,750

Stockholders' equity
  Convertible preferred stock                      893                 887
  Common stock                              38,770,056          36,118,231
  Paid-in capital                            7,011,360           6,494,585
  Imputed dividend                            (381,073)                  -
  Accumulated deficit                      (46,366,073)        (42,419,129)
                                          ___________________________________
Total stockholders' equity                    (964,837)            194,574
                                          ___________________________________
                                          $  6,177,973        $  6,628,678
                                          ===================================

</TABLE>


See notes to condensed consolidated financial statements.

<PAGE>

SGI INTERNATIONAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>

                                 Three months               Nine months
                             ended September 30,        ended September 30,
                           ________________________  _________________________
                              1997         1996          1997         1996
                           ________________________  _________________________
<S>                        <C>           <C>         <C>           <C>
Revenues:
  Net sales                $ 1,195,745   $  659,471  $ 3,779,897   $ 2,906,415
  Other                         10,239       55,714       29,753       278,234
                           ________________________  _________________________
                             1,205,984      715,185    3,809,650     3,184,649


Income (loss) from
  investment in TEK-KOL       (326,212)    (272,098)    (657,960)     (219,120)

Cost and expenses:
  Cost of sales                888,226      805,086    2,893,349     2,551,285
  Research and development     388,178      273,720      939,479       531,054
  Selling, general and
    administrative             719,698      499,661    1,874,244     1,497,365
  Legal and accounting         106,064      147,557      411,137       760,722
  Depreciation and 
    amortization               198,943      127,803      550,624       436,855
  Interest                     160,858      154,374      429,801       397,759
                           ________________________  _________________________
                             2,461,967    2,008,201    7,098,634     6,175,040
                           ________________________  _________________________
Net loss                   $(1,582,195) $(1,565,114) $(3,946,944)  $(3,209,511)


Preferred stock dividends:
  Imputed dividends for
   Series 97B 8%
    Convertible Preferred
     Stock                     236,419            -      236,419             -
  Imputed dividends for
   Series 97D 7%
    Convertible Preferred
     Stock                     144,654            -      144,654             -
                           ________________________  _________________________
Net loss applicable to
   common stock            $(1,963,268)           -   (4,328,017)            -
                           ========================  =========================

Net loss per share         $     (0.26) $     (0.27) $     (0.63)  $     (0.63)
                           ________________________  _________________________
Weighted average common
   shares outstanding        7,472,958    5,829,019    6,851,470     5,115,776
                           ========================  =========================
</TABLE>


See notes to condensed consolidated financial statements.

<PAGE>

SGI INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>

                                 Convertible
                               preferred stock            Common stock
                              Shares     Amount      Shares           Amount
                             __________________________________________________
<S>                          <C>         <C>         <C>          <C>
Balances at
  December 31, 1996            88,732    $  887       6,094,605   $ 36,118,231
  Issuance of common
    stock for cash                  -        -          552,328      1,029,735
  Exercise of warrants
    for cash                        -        -          145,000        136,235
  Issuance of common
    stock for services              -        -          176,207        249,401

  Conversion of 
    preferred stock            (1,029)     (10)       1,033,902      1,236,454
  Issuance of preferred
    stock for cash              1,550       16                -              -
  Issuance of preferred
    stock for debt                  1        -                -              -
  Imputed dividend                  -        -                -              -
  Net loss                          -        -                -              - 
                             __________________________________________________
Balances at
  September 30, 1997           89,254   $  893        8,002,042   $ 38,770,056
                             ==================================================
</TABLE>

<TABLE>
                                                                     Total
                                                  Accumulated     stockholders'
                             Paid-in capital        deficit          equity
                             __________________________________________________
<S>                          <C>               <C>                <C>
Balances at
  December 31, 1996          $ 6,494,585       $ (42,419,129)     $    194,574
  Issuance of common
    stock for cash                     -                   -         1,029,735
  Exercise of warrants
    for cash                           -                   -           136,235
  Issuance of common
    stock for services                 -                   -           249,401

  Conversion of
    preferred stock           (1,236,444)                  -                 -
  Issuance of preferred
    stock for cash             1,359,398                   -         1,359,414
  Issuance of preferred
    stock for debt                12,748                   -            12,748
  Imputed dividend               381,073            (381,073)                -
  Net loss                             -          (3,946,944)       (3,946,944)
                             __________________________________________________
Balances at
  September 30, 1997         $ 7,011,360       $ (46,747,146)     $   (964,837)
                             ==================================================
</TABLE>


See notes to condensed consolidated financial statements.


<PAGE>

SGI INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>

                                                            Nine months
                                                        ended September 30,
                                                      1997             1996
                                                 ______________________________
<S>                                              <C>              <C>
Operating activities
Net loss                                         $ (3,946,944)    $ (3,209,511)
Adjustments to reconcile net loss to net
  cash flows used for operating activities:
  Depreciation and amortization                       570,885          511,189
  Stock and warrants issued for interest,
    services, and notes receivable                    249,401          710,800
  Changes in assets and liabilities:
    Receivable from TEK-KOL Partnership               (29,529)               -
    Trade accounts receivable                         (38,999)        (221,811)
    Inventories                                         1,830          (13,718)
    Other current assets                             (279,774)          48,768
    Accounts payable                                  165,902            2,152
    Billings in excess of costs and
      estimated earnings on contracts                (186,672)         139,285
    Accrued salaries, benefits and
      related taxes                                   218,314          (42,371)
    Royalty payable to related party                        -         (141,790)
    Payable to TEK-KOL Partnership                    116,748         (236,476)
    Interest payable                                  125,029          127,845
    Other accrued expenses                            198,135              651
                                                 ______________________________
Net cash flows used for
  operating activities                             (2,835,674)      (2,324,987)


Investing activities
LFC Process related assets:
  Collection of notes receivable
    and interest                                           -           400,000
  Other technical assets                              (4,765)           (1,302)
Investment in TEK-KOL Partnership                      7,960            88,620
Purchase of property and equipment                  (369,108)         (134,710)
Other assets                                               -            12,876
Redemption of preferred stock                              -           (41,222)
                                                 ______________________________
Net cash flows used for
  investing activities                              (365,913)          324,262


Financing activities Borrowings
  on line-of-credit                                  100,000                 -
Proceeds from issuance of notes payable                    -           215,000
Payments of notes payable                            (28,750)          (96,875)
Proceeds from issuance of common stock             1,165,970         2,836,220
Proceeds from issuance of preferred stock          1,372,162                 -
Collection of notes receivable                             -           194,517
                                                 ______________________________
Net cash flows provided by
  financing activities                             2,609,381         3,148,862
                                                 ______________________________
Net increase (decrease) in cash                     (592,205)        1,148,137
Cash at beginning of period                          740,018            74,154
                                                 ______________________________
Cash at end of period                            $   147,813      $  1,222,291
                                                 ==============================
</TABLE>

See notes to condensed consolidated financial statements.



<PAGE>
SGI INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)

(1) Basis of Presentation

The accompanying condensed consolidated financial statements of SGI
International (the "Company") for the three and nine months ended September 30,
1997, and 1996, are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q.  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, 1997, and the consolidated results of
operations for the three and nine months ended September 30, 1997, and 1996.
The results of operations for the three and nine months ended September 30,
1997, are not necessarily indicative of the results to be expected for the year
ending December 31, 1997.  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,
1996, included in the Company's Form 10-K filed with the Securities and
Exchange Commission.

(2) Organization and Business

The principal businesses of the Company are developing, commercializing, and
licensing new energy technologies; and manufacturing automated assembly
equipment.

The recovery of amounts invested in the Company's principal assets, the LFC
Process related assets, is dependent upon the Company's ability to adequately
fund its capital contributions to the TEK-KOL Partnership and TEK-KOL's ability
to successfully attract sufficient additional equity, debt or other third party
financing to complete the commercialization of the LFC Process technology.
The Company is engaged in continuing negotiations to secure additional capital
and financing, and while management believes these negotiations will be
successful, there is no assurance thereof.

(3) Equity Transactions

On July 15, 1997, the Company converted one $10,000 note payable with accrued
interest of $2,748 by issuing one share of Series 97C convertible preferred
stock.  The convertible preferred share has no voting rights, has a preference
in liquidation of $10,000 and is convertible into 13,500 shares of common stock
on or after August 30, 1998, without further payment.

On August 12, 1997, the Company issued 550 shares of $.01 par value, 7%
Preferred Series 97D and six warrants for an aggregate value of $550,000.
These shares have a liquidation preference of $1,000 per share.  The number of
common shares to be issued upon conversion of the preferred shares will be
determined by dividing the amount invested by the lesser of (a) the average of
closing bid price for the five trading days preceding the closing date or (b)
the product of 77.5% multiplied by the average of the closing bid price for the
five trading days preceding the conversion date.  The six warrants can be
exercised at the average of the closing bid price for the five trading days
preceding the closing date.  Three warrants representing 205,128 each of common
stock expiring respectively 60 days, 120 days and 180 days subsequent to the
effective date of registration with the Securities and Exchange Commission, but
no later than 545 days from closing date.  Another three warrants representing
20,513 shares each of common stock, expiring respectively 60 days, 120 days and
180 days subsequent to the effective date of registration with the Securities
and Exchange Commission, but no later than 545 days from closing date.

On September 11, 1997, the Company issued 236,000 stock options to employees
pursuant to its 1996 Omnibus Stock Plan.  The exercise price was not lower
than the closing bid price on the grant date.

(4) Net Loss per Share

Net loss per share is computed based on the weighted average number of common
shares outstanding and includes preferred stock dividends.  Shares issuable
upon conversion of preferred stock and upon exercise of outstanding stock
options and warrants are not included since the effects 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, without regard
to the actual date on which the preferred stock may be converted.

(5)  Recent Accounting Pronouncements

Recent pronouncements of the Financial Accounting Standards Board ("FASB"),
which are not required to be adopted at this date include, Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information"; SFAS No. 130, "Reporting
Comprehensive Income"; and SFAS No. 128, "Earnings per Share".

Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" is effective for financial statements issued for periods ending after
December 15, 1997.  SFAS No. 128 replaces Accounting Principles Board Opinion
("APB") No. 15 and simplifies the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period.  Diluted EPS reflects the potential dilution from securities
that could share in the earnings of the Company, similar to fully diluted EPS
under APB No. 15.  The Statement requires dual presentation of basic and
diluted EPS by entities with complex capital structures.  The Company will
adopt SFAS No. 128 effective January 1, 1998.

SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal years
beginning after December 15, 1997.  SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements.  The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.  The Company is evaluating the Statement's
provisions to conclude how it will present comprehensive income in its
financial statements, and has not yet determined the amounts to be disclosed.
The Company will adopt SFAS No. 130 effective January 1, 1998.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997.  SFAS No. 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to stockholders.  SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers.  The Company is
evaluating the new Statement's provisions to determine the additional
disclosures required in its financial statements, if any.  The Company will
adopt SFAS No. 131 for the fiscal year ended December 31, 1998.

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

                            INTRODUCTORY NOTE

This Quarterly Report on form 10-Q 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" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.

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 technology, 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-Q, all of
which 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.

The Company undertakes no obligation to publicly update or revise any forward-
looking statements, to reflect new information, events or circumstances,
reflect the occurrence or non-occurrence of unanticipated events after the date
hereof.

                                   Overview

The development of the first commercial LFC Plant in the Powder River Basin of
Wyoming continues to progress.  The project is currently in the permitting
phase with the land quality permit being the only major permit not yet issued.
The engineers at NuCoal, a wholly owned subsidiary of Zeigler, have reduced the
estimated cost of the project from approximately $460,000,000 to approximately
$406,000,000.  While the Engineering, Procurement, and Construction contract
(the "EPCC"), which was signed on December 30, 1996, by a Zeigler subsidiary
and Mitsubishi International, has been terminated, work continues with
Mitsubishi Heavy Industries to further optimize the cost estimate for the
project.

A Memorandum of Understanding ("MOU") between TEK-KOL (a partnership between
the Company and a unit of Zeigler Coal Holding Company) and a group of Russian
private and public entities was executed in the second quarter of 1997.  The
Russian Central government and the regional government in Kemerovo have
approved a Phase II study to analyze the economic and technical feasibility
of an LFC project in Russia's Kuzbass Region.  Under the protocol issued by the
Russian parties, should the Phase II feasibility study results prove positive,
the protocol agreement states that the project will be included in the Central
Government's 1998 Coal Renovation Program for the Kuzbass Region.  The Phase II
study is underway and is expected to be complete and delivered in January of
1998 in Russia to representatives of the public and private consortium.

A MOU was executed between TEK-KOL and PTBA (the Indonesian state owned coal
company) to perform additional tasks necessary to develop and finance an LFC
project at PTBA's coal reserve in the Tanjung Enim area of South Sumatra.  The
United States Trade and Development Agency (the "USTDA") provided funding for
the Phase II study, and the USTDA has completed its due diligence relative to
another grant for the additional tasks necessary to develop and finance an LFC
project.  The USTDA has indicated that it is willing to make the $200,000 grant
conditional on PTBA doing some additional work on their coal reserves.  TEK-KOL
and PTBA continue to discuss as to when that additional work can be scheduled.
TEK-KOL continues to look for other potential projects in Indonesia and is in
discussion with approximately six separate Indonesian entities about performing
feasibility studies with respect to their coal properties.

The OCET process's capability to remove asphaltenes and substantially reduce
catalyst-fouling nickel and vanadium metal content from a variety of oil field
crudes and resids has been successfully demonstrated using bench-scale
continuous processing equipment.  Samples of several types of heavy crudes and
resids have been processed to produce high yields of deasphalted oil and
substantial reductions of catalyst-fouling metals.

Based on these results and progress in developing methods to monitor, control
process yields and product quality, in response to continually changing
feedstocks, OCET has commenced construction of the second generation,
continuous process, stainless steel Process Development Unit (the "PDU"), which
is expected to be operational prior to year end.

A Cooperative Research and Development Agreement was executed with the U.S.
Department of Energy ("DOE") in support of the OCET development program.  A
report of work to date in the development of the process will be
submitted to the DOE in the fourth quarter, which describes the status of the
process and potential joint objectives.  Additionally, contacts have been made
with several potential strategic partners capable of further accelerating the
Company's commercialization efforts.

Additional resources are being deployed to increase sales at AMS, SGI's
automated assembly subsidiary.  Sales for 1997 are expected to exceed 1996
levels.  AMS assisted in designing and constructing certain portions of OCET's
second generation PDU.

The continuing need to fund Company operations with equity-based financing is
causing dilution.  However, Management is committed to accelerating
commercialization of the LFC and OCET technologies and increasing cash flows
from AMS's operations so that equity-based financing can be minimized.  The
Company is also analyzing other strategies to reduce the effects of dilution
while continuing to fund the Company's operations.

The report of the Company's independent auditors for the year ended December
31, 1996, contains an emphasis paragraph as to the Company's ability to
continue as a going concern.  As discussed in Liquidity and Capital Resources,
the Company has short-term and long-term liquidity deficiencies.  The Company's
ability to continue as a going concern is dependent upon successful financing
of its immediate working capital requirements and successful commercialization
of the LFC and OCET technologies.  The Company is engaged in license marketing
activities and negotiations to secure additional financing.  If immediate
working capital requirements are not successfully financed and/or the LFC and
OCET technologies cannot be successfully commercialized, then the adverse
impact on the business and operations of the Company could be material.

                             Results of Operations

Sales and Cost of Sales

Sales and cost of sales for the three months ended September 30, 1997,
increased 81% ($536,000) and 10% ($83,000), respectively, over the same prior
year period.  Sales and cost of sales are primarily attributable to AMS and are
recorded using the percentage of completion method.  Sales and Cost of Sales
increased 30% ($873,000) and 13% ($342,000) for the nine month period ended
September 30, 1997, compared to the same prior year period.  The Company
attributes the increase in sales to increased marketing and sales activities.
Cost of sales as a percentage of sales, compared to the prior year period
decreased approximately 48% as a result of a job overrun in the prior year
period.

Other Income

Other income for the three months ended September 30, 1997, decreased 82%
($45,000) from the same prior year period.  The prior year period included the
reversal of certain accrued expenses totaling $35,000.  Other income for the
nine months ended September 30, 1997, decreased 89% ($248,000) from the same
prior year period.  The decrease is related to the forgiveness of certain
royalty obligations by a related party totaling $142,000 and the reversal of
certain accrued expenses totaling $110,000.

Loss on Investment in TEK-KOL

The Company's share of the TEK-KOL loss for the three months ended September
30, 1997, increased 20% ($54,000) over the same prior year period.  The
increase is the result of TEK-KOL's efforts to increase the economic
value of CDL and thereby improve the entire economics of an LFC plant.
Management believes current results of the CDL enhancement program are positive
and work continues to optimize the CDL process.  The Company's share of the
TEK-KOL loss for the nine months ended September 30, 1997, increased 200%
($439,000) compared to the same prior year period.  In addition to the CDL
enhancement program costs TEK-KOL received certain non-recurring payments under
an agreement with Mitsubishi Heavy Industries during the prior year period.

Research and Development Expenses

The Company's Research and development expenses for the three months ended
September 30, 1997, increased 42% ($114,000) over the same prior year period.
For the nine months ended September 30, 1997, research and development costs
increased 77% ($408,000) from the same prior year period.  The increase for
both the three and nine month periods relates to the Company's heightened
efforts to develop the OCET process.

Selling, General and Administrative Expenses

Selling, general and administrative expense for the three months ended
September 30, 1997, increased 44% ($220,000) from the same prior year period.
Selling, general and administrative expenses for the nine months ended
September 30, 1997, increased 40% ($535,000) from the same prior year period
after adjusting for non-recurring non-cash charge of $158,000.  The increase
for both the three month and nine month periods relates primarily to the
continued expansion of the Company's sales and marketing efforts at AMS, as
well as public relations fees and financial consulting fees.

Legal and Accounting Expenses

The Company's legal and accounting expenses for the three month period ended
September 30, 1997, decreased 28% ($41,000) from the same prior year period.
The decrease is due to cost reduction activities in these areas.  The Company's
legal and accounting expenses for the nine month period ended September 30,
1997, decreased 8% ($34,000) from the same prior year period after adjusting
for non-recurring non-cash charges of $316,000.

Depreciation and Amortization Expenses

Depreciation and amortization expenses for the three months ended September 30,
1997, increased by 56% ($71,000) from the same prior year period.  Depreciation
and amortization expense for the nine months ended September 30, 1997,
increased 26% ($114,000) from the same prior year period.  The increases for
both the three and nine month periods was due primarily to purchases and
construction of additional equipment at the Company's OCET laboratory.

Interest Expense

Interest expense for the three months ended September 30, 1997, increased 4%
($6,000) and as is materially consistent over the same prior year period.
Interest expense for the nine months ended September 30, 1997, increased 8%
($32,000) over the same prior year period.  The increase is due primarily to
increased borrowing on the line of credit as compared to the prior year.

                        Liquidity and Capital Resources

As of September 30, 1997, the Company had assets totaling $6.2 million,
including cash of $148,000, and a working capital deficit of $5.0 million.  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,
1997.  Short-term liquidity requirements are expected to be satisfied from
existing cash balances and proceeds from the sale of equity securities (See
Note 3 to the Financial Statements in Item 1 of Part 1 of this Quarterly Report
of Form 10-Q).  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's Form 10-K for the year ended December 31, 1996, disclosed the
execution of two funding agreements in April 1997 which provided gross proceeds
of $2 million through the sale of equity securities.  As previously reported,
funding for an additional $2 million was subject to certain minimum levels of
price and trading volume of the Company's common stock.  The contingencies were
not met and the additional funding did not close.

The Company's investing activities increased during the nine months ended
September 30, 1997, as equipment was purchased and built for the OCET
laboratory.  The amount of funds used for investing activities in a given
period are directly related to development requirements and funds availability.
The Company does not have material commitments for capital expenditures as of
September 30, 1997.

The Company had notes payable and associated accrued interest of approximately
$4.8 million due September 30, 1997.  The Company satisfied these liabilities
subsequent to September 30, 1997, by its 97E private placement offering which
extended the due date of these liabilities to September 30, 1998, in exchange
for primarily debt and equity securities.

The Company's financing activities raised approximately $2.7 million and $3.1
million during the nine months ended September 30, 1997, and 1996,
respectively.  These funds were raised primarily through the private placement
of equity securities and borrowings on the line-of-credit.  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.  The Company is engaged in continuing negotiations to secure
additional capital and financing, and while management believes these
negotiations will be successful, there is no assurance thereof.

Additional capital contributions to the TEK-KOL Partnership are expected to be
required from time to time prior to profitable operations.  The Company is
required to contribute one-half of any such required capital contributions.


                         PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, various claims are asserted against the
Company and its subsidiaries.  However, except for a complaint against AMS
relating to activities that occurred prior to its acquisition by the Company, no
claims asserted against the Company have resulted in litigation.  Management's
opinion is that, based on the facts presently known to management, the ultimate
resolution of any and all claims, including the claim against AMS, will not
have a material effect on the Company's financial position, results of
operations or liquidity.

ITEM 2. CHANGES IN SECURITIES

On July 15, 1997, the Company converted one $10,000 note payable and associated
accrued interest of $2,748 into equity by issuing one share of Series 97C
convertible preferred stock to a single Purchaser in reliance on the private
placement exemption of Section 4(2) of the Securities Act.  The Purchaser
represented that it was an accredited investor, acquiring the share for its own
account for investment purposes as a principal and without a view towards
immediate resale on distribution.  The shares were not offered to the Purchaser
through any general solicitation.  The convertible preferred share is fully
paid and non assessable, has no voting rights, has a preference in liquidation
of $10,000 and is convertible into 13,500 shares of common stock on or after
August 30, 1998, without further payment.

On August 12, 1997, the Company issued 550 shares of $.01 par value, 7%
Convertible Preferred Stock Series 97D ("97D Preferred Shares") and six
warrants, to two Purchasers for $1,000 per share for an aggregate purchase
price of $550,000 in reliance on the private placement exemption of Section
3(b) or 4(2) of the Securities Act and Regulation D.  The Purchasers
represented that they were accredited investors, acquiring the shares of 97D
Preferred Shares and warrants for their own account, for investment purposes,
as principals and without a view towards immediate resale or distribution.  In
accordance with the conditions of sale the Company has the obligation to
register the actual number of shares of common stock underlying the warrants
and 230% of the common stock underlying the 97D Preferred Shares.  The number
of shares to be registered shall be determined as the average closing bid price
for the five trading days preceding the closing date two days prior to the date
of filing the registration statement with the Securities and Exchange
Commission.  The shares were not offered through any general solicitation.
In connection with the sale of the 97D Preferred Shares, the Company paid an
unaffiliated placement agent a cash fee of $27,500.  Additionally, the Company
incurred approximately $18,000 in costs related to the issuance of the 97D
Preferred Shares.  Also see Note 3 to the Financial Statements in Item 1 of
Part 1 of this Quarterly Report of Form 10-Q.

During the three month period ended September 30, 1997, all 1,000 shares of the
97B convertible preferred stock were converted into 756,006 shares of common
stock.

As provided in related service or consulting agreements, the Company granted
five warrants to purchase 150,000 common shares, to one employee and three
consultants for services rendered during the three month period ended September
30, 1997, pursuant to Reg. D.  The exercise prices were not lower than the
closing bid price on the grant date and expire on December 31, 2001.  The
warrants are exercisable one year from the grant date with two warrants for
100,000 shares of common stock exercisable at $1.03, and the other three
warrants for 50,000 shares of common stock exercisable at $2.34 per share.

During the quarter ended September 30, 1997, the Company issued 13,701
restricted common shares to three domestic individuals pursuant to Reg. D
for services rendered.

ITEM 5. OTHER INFORMATION

Subsequent to the quarter's end, the Company on November 6, 1997, issued 1,750
shares of $.01 par value 8% Convertible Preferred Stock Series 97F ("Preferred
Shares") to certain foreign investors and five warrants, to five Purchasers for
$1,000 per share at an aggregate purchase price of $1,750,000 in reliance on
the private placement exemption of Section 3(b) or Section 4(2), Regulation D
and Regulation S of the Securities Act of 1933.  The Purchasers represented
that they were accredited investors, acquiring the shares of 8% Convertible
Preferred Stock Series 97F and warrants for their own account, for investment
purposes, as principals and without a view towards immediate resale or
distribution.  In addition, the Purchasers have also represented, in the event
they elect the option provided after certain conditions precedent have
occurred, to rely upon a Regulation S exemption, that they are not U.S. persons
as defined by Regulation S of the Securities Act of 1933 and meet all
requirements as stated therein.  The number of shares of common stock
underlying the 97F Preferred shares and warrants are subject to a Registration
Rights Agreement which entitles the Purchasers to demand registration upon
written notice to the Company.  The Company is required to register 200% of the
number of shares that would be required if all of the 97F Preferred Shares were
converted, assuming a conversion date 5 days prior to the filing of the
registration statement with the Securities and Exchange Commission.  The number
of common shares to be issued upon conversion of the 97F Preferred Shares will
be determined by dividing the amount invested by the lesser of (a) the average
closing bid price for the five trading days preceding the closing date or (b)
by the product of 75% multiplied by the average of the closing bid price for
the five trading days preceding the conversion date.  The five warrants which
are convertible into 70,000 shares of common stock, contain a conversion price
equal to 110% of the average closing bid price for the five trading days
preceding the closing date.  The warrants all expire on November 6, 2002.

The 97F Preferred Shares accrue dividends at a rate of 8% per annum and are
cumulative.  The dividend is only payable in common stock of the Company.  The
97F Preferred Shares have a liquidation preference of $1,000 per share and are
convertible at the earlier of (i) the date the registration statement is
declared effective or (ii) sixty one days from the closing date (November 6,
1997).  If the registration statement is not declared effective by the
Securities and Exchange Commission by the 61st day following the date of the
demand registration, the Purchasers, at their option may either (a) convert up
to 50% of their investment in the 97F Preferred Shares, pursuant to Regulation
S or (b) if the Company qualifies to register the Securities under a S-3 form,
require the Company to pay certain specified damages in cash.  Furthermore, if
the Company qualifies to file under a form S-2b and the registration statement
is not declared effective by the Securities and Exchange Commission by the
121st day following the date of the demand registration the Purchasers, at
their option may either (a) convert all or part of their remaining investment
in the 97F Preferred Shares, pursuant to Regulation S and/or (b) require the
Company to pay certain specified damages in cash.  The 97F Preferred Shares are
callable by the Company at 130% of the Liquidation Value upon certain
conditions precedent.

In connection with the sale of the 97F Preferred Shares, the Company paid two
unaffiliated placement agents, Settendown Capital and Ganesh Asset Management,
Ltd., fees consisting of $70,000 in cash, 105 shares of 97F Preferred Shares
having a value of $105,000, and warrants to purchase 35,000 shares of common
stock as compensation for placement.  The warrants contain a conversion price
equal to 110% of the average closing bid price for the five trading days
preceding Novemebr 6, 1997.  The warrants all expire on November 6, 2002.  In
addition, the Company paid $8,750 in cash for legal and escrow fees incurred in
connection with this transaction.  The net proceeds to the Company of
$1,671,250 will be used for working capital and the continuous research and
development of its OCET and LFC processes.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

1.   Exhibits

4.1   Form of 8% Convertible Preferred Stock - Series 97F(1)
4.2   Form of 7% Convertible Preferred Stock - Series 97D(1)
4.3   Form of Warrants - Series 97F(1)
4.4   Form of Warrants - Series 97D(1)
4.5   Form of Warrants - Placement Agents(1)
10.1  Form of Registration Rights Agreement - Series 97D(1)
10.2  Form of Registration Rights Agreement - Series 97F(1)
10.3  Form of Subscription Agreement - Series 97F(1)
10.4  Form of Stock Purchase Agreement - Series 97D(1)
10.5  1996 Omnibus Stock Plan(1)
27.0  Financial Data Schedule(1)

(1) Filed herewith.

2.   Reports on Form 8-K - None

<PAGE>


                         PART III. 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.


SGI INTERNATIONAL


         /s/                                                 November 13, 1997
__________________________________________________
Joseph A. Savoca,
Chief Executive Officer and Chairman of the Board



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.


         /s/                                                 November 13, 1997
__________________________________________________
Joseph A. Savoca,
Chief Executive Officer and Chairman of the Board


<PAGE>

Index to Exhibits                                                  Page



4.1   Form of 8% Convertible Preferred Stock - Series 97F           1-3
4.2   Form of 7% Convertible Preferred Stock - Series 97D           4-6
4.3   Form of Warrants - Series 97F                                7-14
4.4   Form of Warrants - Series 97D                               15-22
4.5   Form of Warrants - Placement Agents                         23-30
10.1  Form of Registration Rights Agreement - Series 97D          31-38
10.2  Form of Registration Rights Agreement - Series 97F          39-47
10.3  Form of Subscription Agreement - Series 97F                 48-68
10.4  Form of Stock Purchase Agreement - Series 97D               69-80
10.5  1996 Omnibus Stock Plan                                     81-96
27.0  Financial Data Schedule                                        97