****PROMISSORY NOTE****

**$35,000                                                                                           **Dated: November 15, 2000  
***SECTION ONE***
***TERMS OF NOTE***
FOR VALUE RECEIVED, SGI INTERNATIONAL, OTC Bulletin Board symbol "SGII"("the "Debtor"), of 1200 Prospect Street, Suite 325, La Jolla, California92037 promises to pay to the order of Jeffrey L. Smith (hereinafter "Smith")of 1087 West River St., Suite 200, Boise, ID, the principal sum of ThirtyFive Thousand ($35,000) Dollars with interest thereon from the above dateat the rate of nine percent (9%) per annum, payable upon five (5) dayswritten demand but no sooner than on December 31, 2000 in cash or by mutualagreement in restricted common stock of the Debtor. Debtor shall be indefault hereunder only after Smith gives five (5) days advance writtennotice to Debtor that it is in default, and Debtor does not cure such defaultwithin this prescribed period.
***SECTION TWO***
***PREPAYMENT OF NOTE***
Prepayment of the full principal balance, along with allunpaid interest, or any portion of the principal balance, along with anyportion thereof of unpaid interest, is permitted at any time without penalty.

***SECTION THREE***
***EFFECT OF WAIVER OF RIGHTS BY HOLDER***
Holder is not under any obligation to exercise any ofhis rights under this note, and failure to exercise his rights under thisnote or to delay in exercising any of his rights shall not be deemed awaiver of or in any manner impair any of the rights of Holder.

***SECTION FOUR***
***CUMULATIVE RIGHTS AND REMEDIES***
The rights and remedies of Holder specified in this noteare cumulative and do not exclude any other rights or remedies he may otherwisehave.
***SECTION FIVE***
***ACCELERATION ON INSOLVENCY OF DEBTOR***
If Debtor shall be adjudged bankrupt, or file a petitionin bankruptcy, or have a petition in bankruptcy filed against it, thisnote shall become due and payable immediately without demand or notice.  
***SECTION SIX***
***WAIVER OF PRESENTMENT, PROTEST, AND NOTICE OF DISHONOR***
Except as otherwise required herein, Debtor hereby waivesall acts on the part of Holder required in fixing the liability of theparty, including among other things presentment, notice of dishonor, protest,notice of protest, notice of nonpayment, and any other notice.

***SECTION SEVEN***
***CHOICE OF LAWS***
This note shall be governed by and construed in accordancewith the laws of California in all respects, including matters of construction,validity and performance.

***SECTION EIGHT***
***COSTS OF COLLECTION***
Debtor shall pay on demand all costs of collection, includinglegal expenses and attorney fees, incurred by Holder in enforcing thisnote on default.

***SECTION NINE***
***INTEREST CHARGES***
If a law, which applies to this note and which sets themaximum interest amount, is finally interpreted so that the interest inconnection with this note exceeds the permitted limits, then: (1) any suchinterest shall be reduced by the amount necessary to reduce the interestto the permitted limit; and (2) any sums already collected (if any) fromthe Debtor which exceed the permitted limits will be refunded to the Debtor.Holder may choose to make this refund by reducing the principal Debtorowes under this note or by making a direct payment to the Debtor. If arefund reduces the principal, the reduction will be treated as a partialpayment.  
Dated: November 15, 2000                                                        SGI INTERNATIONAL 
                                                                                                   By*/s/ John R. Taylor*                                                                                                       Authorized Signatory