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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 333-133825





SGS INTERNATIONAL, INC.

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 20-3939981                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|626 West Main Street, Suite 500 Louisville, Kentucky           |  | 40202                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(502) 637-5443

(Registrants telephone number, including area code)

Not Applicable

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





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.    Yes  x    No   ̈

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):



|                           |  |                             
|-------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈        
|                           | 
|Non-accelerated filer  x   |  | Smaller reporting company   ̈

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

As of July 31, 2008 there were 100 shares of
the registrants common stock, $0.01 par value, outstanding.









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TABLE OF CONTENTS



|                               |  |                                                                                        |  |    
|------------------------------ |  | -------------------------------------------------------------------------------------- |  | ---
|PART I  FINANCIAL INFORMATION |  | 3                                                                                     
|                               |  |                                                                                       
|Item 1.                        |  | Financial Statements                                                                   |  | 3  
|                               |  |                                                                                       
|                               |  | Condensed Consolidated Statements of Operations                                        |  | 3-4
|                               |  |                                                                                       
|                               |  | Condensed Consolidated Balance Sheets                                                  |  | 5  
|                               |  |                                                                                       
|                               |  | Condensed Consolidated Statement of Stockholders Equity                               |  | 6  
|                               |  |                                                                                       
|                               |  | Condensed Consolidated Statements of Cash Flows                                        |  | 7  
|                               |  |                                                                                       
|                               |  | Notes to Condensed Consolidated Financial Statements                                   |  | 8  
|                               |  |                                                                                       
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations. |  | 23 
|                               |  |                                                                                       
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                             |  | 28 
|                               |  |                                                                                       
|Item 4T.                       |  | Controls and Procedures                                                                |  | 28 
|                               | 
|PART II  OTHER INFORMATION    |  | 28                                                                                    
|                               |  |                                                                                       
|Item 1.                        |  | Legal Proceedings                                                                      |  | 28 
|                               |  |                                                                                       
|Item 1A.                       |  | Risk Factors                                                                           |  | 29 
|                               |  |                                                                                       
|Item 6.                        |  | Exhibits.                                                                              |  | 29 
|                               | 
|SIGNATURES                     |  | 31                                                                                    



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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands of dollars)



|                                                  |  |                                 |        |   |                                 |   |        |  
|------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | - | ------ | -
|                                                  |  | Three Months EndedJune 30, 2008 |        |   | Three Months EndedJune 30, 2007 |  
|NET SALES                                         |  | $                               | 84,492 |   |                                 | $ | 80,363 |  
|COSTS OF OPERATIONS:                              |  |                                 |        |   |                                 |   |        |  
|Cost of goods sold (exclusive of depreciation)    |  |                                 | 55,876 |   |                                 |   | 54,057 |  
|Selling, general, and administrative expenses     |  |                                 | 12,232 |   |                                 |   | 12,438 |  
|Depreciation and amortization                     |  |                                 | 7,207  |   |                                 |   | 5,792  |  
|                                                  |  |                                 |        |   |                                 |   |        |  
|INCOME FROM OPERATIONS                            |  |                                 | 9,177  |   |                                 |   | 8,076  |  
|                                                  |  |                                 |        |   |                                 |   |        |  
|NON-OPERATING EXPENSES:                           |  |                                 |        |   |                                 |   |        |  
|Interest expense                                  |  |                                 | 9,199  |   |                                 |   | 9,276  |  
|Other expense (income), net                       |  |                                 | (714   | ) |                                 |   | 481    |  
|                                                  |  |                                 |        |   |                                 |   |        |  
|INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES |  |                                 | 692    |   |                                 |   | (1,681 | )
|                                                  |  |                                 |        |   |                                 |   |        |  
|PROVISION (BENEFIT) FOR INCOME TAXES              |  |                                 | 377    |   |                                 |   | (575   | )
|                                                  |  |                                 |        |   |                                 |   |        |  
|NET INCOME (LOSS)                                 |  | $                               | 315    |   |                                 | $ | (1,106 | )
|                                                  |  |                                 |        |   |                                 |   |        |  

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2007, are an integral part of the financial statements.



3



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands of dollars)



|                                                                                     |  |                               |         |   |                               |   |        
|------------------------------------------------------------------------------------ |  | ----------------------------- | ------- | - | ----------------------------- | - | -------
|                                                                                     |  | Six Months EndedJune 30, 2008 |         |   | Six Months EndedJune 30, 2007
|NET SALES                                                                            |  | $                             | 167,743 |   |                               | $ | 155,489
|COSTS OF OPERATIONS:                                                                 |  |                               |         |   |                               |   |        
|Cost of goods sold (exclusive of depreciation)                                       |  |                               | 110,188 |   |                               |   | 102,948
|Selling, general, and administrative expenses                                        |  |                               | 24,817  |   |                               |   | 22,739 
|Depreciation and amortization                                                        |  |                               | 13,700  |   |                               |   | 10,897 
|                                                                                     |  |                               |         |   |                               |   |        
|INCOME FROM OPERATIONS                                                               |  |                               | 19,038  |   |                               |   | 18,905 
|                                                                                     |  |                               |         |   |                               |   |        
|NON-OPERATING EXPENSES:                                                              |  |                               |         |   |                               |   |        
|                                                                                     |  |                              
|Interest expense                                                                     |  |                               | 18,701  |   |                               |   | 18,223 
|Other expense (income), net                                                          |  |                               | (353    | ) |                               |   | 189    
|                                                                                     |  |                               |         |   |                               |   |        
|INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                                |  |                               | 690     |   |                               |   | 493    
|                                                                                     |  |                              
|PROVISION FOR INCOME TAXES                                                           |  |                               | 377     |   |                               |   | 262    
|                                                                                     |  |                               |         |   |                               |   |        
|INCOME FROM CONTINUING OPERATIONS                                                    |  |                               | 313     |   |                               |   | 231    
|                                                                                     |  |                               |         |   |                               |   |        
|INCOME FROM DISCONTINUED OPERATIONS (including gain on disposal of $935 during 2007) |  |                               |        |   |                               |   | 842    
|                                                                                     |  |                              
|PROVISION FOR INCOME TAXES ON DISCONTINUED OPERATIONS                                |  |                               |        |   |                               |   | 170    
|                                                                                     |  |                               |         |   |                               |   |        
|NET INCOME                                                                           |  | $                             | 313     |   |                               | $ | 903    
|                                                                                     |  |                               |         |   |                               |   |        

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2007, are an integral part of the financial statements.



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands of dollars, except share data)



|                                                                                                                 |  |               |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                 |  | June 30, 2008 |         |   | December 31, 2007 |  
|ASSETS                                                                                                           |  |               |         |   |                   |   |         |  
|                                                                                                                 |  |              
|Current assets:                                                                                                  |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                        |  | $             | 14,290  |   |                   | $ | 34,467  |  
|Receivables from customers, less allowances of $900 and$830 at June 30, 2008 and December 31, 2007, respectively |  |               | 60,958  |   |                   |   | 61,142  |  
|Inventories                                                                                                      |  |               | 8,237   |   |                   |   | 7,718   |  
|Deferred income taxes                                                                                            |  |               | 1,462   |   |                   |   | 575     |  
|Prepaid expenses and other current assets                                                                        |  |               | 11,120  |   |                   |   | 11,039  |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|Total current assets                                                                                             |  |               | 96,067  |   |                   |   | 114,941 |  
|                                                                                                                 |  |              
|Properties, plants and equipment, net                                                                            |  |               | 51,744  |   |                   |   | 53,368  |  
|Goodwill                                                                                                         |  |               | 184,468 |   |                   |   | 175,933 |  
|Other intangible assets, net                                                                                     |  |               | 181,181 |   |                   |   | 176,233 |  
|Deferred financing costs, net                                                                                    |  |               | 8,229   |   |                   |   | 8,848   |  
|Other assets                                                                                                     |  |               | 503     |   |                   |   | 883     |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                     |  | $             | 522,192 |   |                   | $ | 530,206 |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  |               |         |   |                   |   |         |  
|                                                                                                                 |  |              
|Current liabilities:                                                                                             |  |               |         |   |                   |   |         |  
|Accounts payable, trade                                                                                          |  | $             | 17,193  |   |                   | $ | 22,346  |  
|Accrued compensation                                                                                             |  |               | 5,572   |   |                   |   | 7,928   |  
|Accrued taxes, including taxes on income                                                                         |  |               | 2,924   |   |                   |   | 2,397   |  
|Accrued interest                                                                                                 |  |               | 1,016   |   |                   |   | 1,048   |  
|Other current liabilities                                                                                        |  |               | 7,669   |   |                   |   | 7,101   |  
|Current portion of short-term and long-term obligations                                                          |  |               | 2,173   |   |                   |   | 2,226   |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|Total current liabilities                                                                                        |  |               | 36,547  |   |                   |   | 43,046  |  
|Long-term obligations, net of current portion                                                                    |  |               | 359,129 |   |                   |   | 360,859 |  
|Non-current liabilities                                                                                          |  |               | 264     |   |                   |   | 1,398   |  
|Deferred income taxes                                                                                            |  |               | 8,901   |   |                   |   | 5,693   |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                |  |               | 404,841 |   |                   |   | 410,996 |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|Commitments and contingencies                                                                                    |  |               |         |   |                   |   |         |  
|                                                                                                                 |  |              
|Stockholders equity:                                                                                            |  |               |         |   |                   |   |         |  
|Common stock, $.01 par value, 1,000 shares authorizedand 100 shares outstanding                                  |  |               |        |   |                   |   |        |  
|Additional capital                                                                                               |  |               | 107,000 |   |                   |   | 107,000 |  
|Accumulated other comprehensive income - unrealizedtranslation adjustments, net of tax                           |  |               | 11,337  |   |                   |   | 13,509  |  
|Accumulated deficit                                                                                              |  |               | (986    | ) |                   |   | (1,299  | )
|                                                                                                                 |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                                                       |  |               | 117,351 |   |                   |   | 119,210 |  
|                                                                                                                 |  |               |         |   |                   |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                       |  | $             | 522,192 |   |                   | $ | 530,206 |  
|                                                                                                                 |  |               |         |   |                   |   |         |  

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2007, are an integral part of the financial statements.



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders Equity

(unaudited)

(in thousands of dollars)



|                                        |  |                   |        |   |             |   |                   |  |                    |         |  |                                     |        |   |                          |   |        |   |  |   |         |  
|--------------------------------------- |  | ----------------- | ------ | - | ----------- | - | ----------------- |  | ------------------ | ------- |  | ----------------------------------- | ------ | - | ------------------------ | - | ------ | - |  | - | ------- | -
|                                        |  | ComprehensiveLoss |        |   | CommonStock |   | AdditionalCapital |  | AccumulatedDeficit |         |  | AccumulatedOtherComprehensiveIncome |        |   | TotalStockholdersEquity |  
|Balance at December 31, 2007            |  |                   |        |   |             | $ |                  |  | $                  | 107,000 |  | $                                   | (1,299 | ) |                          | $ | 13,509 |   |  | $ | 119,210 |  
|Comprehensive loss:                     |  |                   |        |   |             |   |                   |  |                    |         |  |                                     |        |   |                          |   |        |   |  |   |         |  
|Net income                              |  | $                 | 313    |   |             |   |                  |  |                    |        |  |                                     | 313    |   |                          |   |       |   |  |   | 313     |  
|Cumulative translation adjustments, net |  |                   | (2,172 | ) |             |   |                  |  |                    |        |  |                                     |       |   |                          |   | (2,172 | ) |  |   | (2,172  | )
|                                        |  |                   |        |   |             |   |                   |  |                    |         |  |                                     |        |   |                          |   |        |   |  |   |         |  
|Comprehensive loss                      |  | $                 | (1,859 | ) |             |   |                   |  |                    |         |  |                                     |        |   |                          |   |        |   |  |   |         |  
|                                        |  |                   |        |   |             |   |                   |  |                    |         |  |                                     |        |   |                          |   |        |   |  |   |         |  
|Balance at June 30, 2008                |  |                   |        |   |             | $ |                  |  | $                  | 107,000 |  | $                                   | (986   | ) |                          | $ | 11,337 |   |  | $ | 117,351 |  
|                                        |  |                   |        |   |             |   |                   |  |                    |         |  |                                     |        |   |                          |   |        |   |  |   |         |  

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2007, are an integral part of the financial statements.



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands of dollars)



|                                                            |  |                               |         |   |                               |   |         |  
|----------------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                                                            |  | Six Months EndedJune 30, 2008 |         |   | Six Months EndedJune 30, 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                        |  | $                             | 10,294  |   |                               | $ | 10,989  |  
|                                                            |  |                               |         |   |                               |   |         |  
|                                                            |  |                              
|CASH FLOWS FROM INVESTING ACTIVITIES:                       |  |                               |         |   |                               |   |         |  
|Acquisition of properties, plants and equipment             |  |                               | (5,702  | ) |                               |   | (6,171  | )
|Proceeds from sale of equipment                             |  |                               | 487     |   |                               |   |        |  
|Proceeds from divestiture of business, net of cash divested |  |                               |        |   |                               |   | 628     |  
|Business acquisitions, net of cash acquired                 |  |                               | (23,834 | ) |                               |   | (28,471 | )
|                                                            |  |                               |         |   |                               |   |         |  
|Net cash used in investing activities                       |  |                               | (29,049 | ) |                               |   | (34,014 | )
|                                                            |  |                               |         |   |                               |   |         |  
|                                                            |  |                              
|CASH FLOWS FROM FINANCING ACTIVITIES:                       |  |                               |         |   |                               |   |         |  
|Borrowings on acquisition facility                          |  |                               |        |   |                               |   | 23,057  |  
|Payments for deferred financing fees                        |  |                               | (117    | ) |                               |   |        |  
|Payments on long-term debt                                  |  |                               | (1,192  | ) |                               |   | (2,367  | )
|                                                            |  |                               |         |   |                               |   |         |  
|Net cash provided by (used in) financing activities         |  |                               | (1,309  | ) |                               |   | 20,690  |  
|                                                            |  |                               |         |   |                               |   |         |  
|Effect of exchange rate changes on cash                     |  |                               | (113    | ) |                               |   | 452     |  
|                                                            |  |                               |         |   |                               |   |         |  
|DECREASE IN CASH AND CASH EQUIVALENTS                       |  |                               | (20,177 | ) |                               |   | (1,883  | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD              |  |                               | 34,467  |   |                               |   | 12,658  |  
|                                                            |  |                               |         |   |                               |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                    |  | $                             | 14,290  |   |                               | $ | 10,775  |  
|                                                            |  |                               |         |   |                               |   |         |  

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual
report on Form 10-K for the year ended December 31, 2007, are an integral part of the financial statements.



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(all
amounts in thousands of dollars, unless otherwise stated)



|A. | Summary of Significant Accounting Policies
|-- | ------------------------------------------



| | General Nature of Business
| | --------------------------

SGS International, Inc.
(the Company), headquartered in Louisville, Kentucky, operates in one operating business segment, pre-press graphic services. The Company provides a variety of services that include the preparatory steps that precede the actual printing
of an image onto packaging material. The Company supplies photographic images, digital images, flexographic printing plates and rotogravure cylinders for the packaging printing industry. The Company has 39 locations in the United States, Canada,
Mexico, the United Kingdom, the Netherlands, and Hong Kong.



| | Basis of Presentation
| | ---------------------

The accompanying unaudited
consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and related footnotes that would normally be required by accounting principles generally accepted in the United States of America for complete financial reporting. These unaudited consolidated financial
statements should be read in conjunction with the Companys consolidated audited financial statements for the year ended December 31, 2007 in the Companys Form 10-K filed with the Securities and Exchange Commission. The
December 31, 2007 balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of a normal and recurring nature) that
management considers necessary for a fair statement of financial information for the interim periods. Interim results are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2008.



| | Principles of Consolidation
| | ---------------------------

The accompanying
consolidated financial statements include the accounts of SGS International, Inc., its wholly owned subsidiaries and companies more than fifty percent owned. These subsidiaries include Southern Graphic Systems, Inc. (SGS), Project Dove
Holdco, Inc., Project Dove Manitoba, L.P., Southern Graphic Systems-Canada, Co., Southern Graphic Systems Mexico, S. De R.L. De C.V (SGS Mexico), SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, MCG Graphics Limited,
The Box Room Limited and SGS Packaging Netherlands B.V. These subsidiaries also include Mozaic Group, Ltd (Mozaic) through February 28, 2007, McGurk Studios Limited and Thames McGurk Limited since April 2, 2007, SGS Asia
Pacific Limited since July 11, 2007, 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flex-Art Design Inc. since January 1, 2008, and Backwell Design Inc. and Gemini Graphic Imaging Inc.
since May 2, 2008.

On February 28, 2007, the Company sold its controlling interest in Mozaic to a third party. The Company has
retained a 10% interest in Mozaic. The accompanying consolidated balance sheets as of June 30, 2008 and December 31, 2007 do not include the accounts of Mozaic, but includes our investment in Mozaic recorded at cost, adjusted for
impairment. The carrying value of our investment in Mozaic is zero at June 30, 2008 and December 31, 2007. The historical results of Mozaic are presented as discontinued operations in the accompanying consolidated statement of operations.



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The following table represents the major classes of assets and liabilities as of the date of the disposal
of Mozaic:



|                        |  |   |      
|----------------------- |  | - | -----
|Current assets          |  | $ | 3,120
|Non-current assets      |  | $ | 812  
|                        | 
|Current liabilities     |  | $ | 4,209
|Non-current liabilities |  | $ | 288  

Below are the amounts of revenue and pre-tax profit reported from the discontinued operations of
Mozaic. The pre-tax profit of $842 for the six months ended June 30, 2007 includes a gain on the sale of Mozaic of $935. Excluding this gain on sale, the pre-tax loss was $93.



|               |  |                              |      
|-------------- |  | ---------------------------- | -----
|               |  | Six Months EndedJune 30,2007
|Sales          |  | $                            | 2,406
|Pre-tax profit |  | $                            | 842  



| | Inventories and Cost of Goods Sold
| | ----------------------------------

Raw materials
inventory is valued at the lower of cost or market with cost determined using the first-in, first-out (FIFO) method. Work-in-process inventory is valued at the lower of cost or net realizable value. There is no finished goods inventory
since all products are shipped upon completion. Raw materials inventory and work-in-process inventory are as follows:



|                |  |              |       |                  |   |      
|--------------- |  | ------------ | ----- | ---------------- | - | -----
|                |  | June 30,2008 |       | December 31,2007
|Raw materials   |  | $            | 2,314 |                  | $ | 2,709
|Work-in-process |  |              | 5,923 |                  |   | 5,009
|                |  |              |       |                  |   |      
|                |  | $            | 8,237 |                  | $ | 7,718
|                |  |              |       |                  |   |      



| | Use of Estimates
| | ----------------

The consolidated financial
statements are prepared in conformity with accounting principles generally accepted in the United States of America and require management to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Areas that require significant judgments, estimates and
assumptions include revenue recognition, accounts receivable and the allowance for doubtful accounts, work-in-process inventory, impairment of goodwill, other intangible assets and long-lived assets, accrued health and welfare benefits, and tax
matters. Management uses historical experience and all available information to make these judgments and actual results could differ from those estimates upon subsequent resolution of some matters.



| | Change in Accounting Estimate
| | -----------------------------

During the six
months ended June 30, 2008, the Company made a change in accounting estimate by revising the estimated remaining useful life on production software that is expected to be replaced by the end of 2008. Amortization expense associated with
this production software was $1,003 and $1,523 for the quarter and six months ended June 30, 2008, respectively, compared to $278 and $557 for the quarter and six months ended June 30, 2007, respectively. Based on this change in
estimate, increased amortization will continue through the remainder of 2008 with a full year impact of approximately $2,414.



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| | Reclassifications
| | -----------------

Certain reclassifications have
been made to the 2007 condensed consolidated financial statements to conform to the 2008 presentation.



| | Recently Issued and Adopted Accounting Standards
| | ------------------------------------------------

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations(SFAS 141(R)). SFAS 141(R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS 141(R) is effective for acquisitions completed in
fiscal years beginning after December 15, 2008. The effect the adoption of SFAS 141(R) will have on the Companys financial statements will depend on the nature and size of acquisitions completed after the Company adopts SFAS 141(R).

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated
Financial Statements - An Amendment of ARB No. 51, (SFAS 160). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective
for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 is not expected to have an impact on the Companys consolidated financial statements.

On January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115, (SFAS 159). SFAS 159 permits entities to measure many financial instruments and certain other assets and liabilities at fair value on an
instrument-by-instrument basis under a fair value option. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have an impact on the Companys consolidated financial statements as the
Company did not elect to measure any financial assets or financial liabilities at fair value.

On January 1, 2008, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157), as further discussed in Note E.



|B. | Acquisitions
|-- | ------------

Effective January 1, 2008,
Southern Graphic Systems-Canada, Co., a wholly owned subsidiary of SGS International, Inc., acquired the outstanding shares of 1043497 Ontario Limited (1043497) and Cooper & Williamson, Inc. (together with 1043497 and its wholly
owned subsidiaries Tri-Ad Graphic Communications Ltd. and Flex-Art Design Inc., Tri-Ad) under a Share Purchase Agreement (the SPA), for a cash purchase price of 22.0 million Canadian dollars ($22,319 based on the U.S.
dollar/Canadian dollar exchange rate at the time of acquisition), subject to adjustment as described in the SPA. Tri-Ad is a Canadian provider of packaging and retail graphics services with locations in Toronto, Ontario and outside of Montreal,
Quebec. The preliminary purchase price allocation for the acquisition of Tri-Ad is provided below. This allocation may change significantly based on final purchase price adjustments and ongoing intangible asset valuations.



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|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Purchase price                   |  | $ | 22,319 |  
|Transaction costs                |  |   | 742    |  
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 23,061 |  
|                                 |  |   |        |  
|Allocation of acquisition price: |  |   |        |  
|Current assets                   |  | $ | 7,849  |  
|Properties, plants and equipment |  |   | 2,475  |  
|Goodwill                         |  |   | 8,718  |  
|Customer relationships           |  |   | 7,084  |  
|Other intangible assets          |  |   | 892    |  
|Liabilities assumed              |  |   | (3,957 | )
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 23,061 |  
|                                 |  |   |        |  

Results of operations of Tri-Ad are included in the condensed consolidated statements of
operations from the date of the acquisition. Pro forma results of the Company, assuming the acquisition of Tri-Ad had been made at the beginning of each period presented, would not have been materially different from the results reported.

On May 2, 2008, Southern Graphic Systems-Canada, Co., a wholly owned subsidiary of SGS International, Inc., acquired a Canadian
provider of packaging and retail graphics for an aggregate cash consideration of 3.2 million Canadian dollars ($3,197 based on the U.S. dollar/Canadian dollar exchange rate at the time of acquisition) (the Consideration). A portion
of the Consideration is payable only if the acquired business achieves a specified threshold of earnings before interest, taxes, depreciation and amortization. The preliminary purchase price allocation for the acquisition is provided below, but
remains subject to completion of final fair value allocations.



|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Purchase price                   |  | $ | 3,197  |  
|Transaction costs                |  |   | 8      |  
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 3,205  |  
|                                 |  |   |        |  
|Allocation of acquisition price: |  |   |        |  
|Current assets                   |  | $ | 705    |  
|Properties, plants and equipment |  |   | 58     |  
|Goodwill                         |  |   | 1,140  |  
|Customer relationships           |  |   | 2,812  |  
|Liabilities assumed              |  |   | (1,510 | )
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 3,205  |  
|                                 |  |   |        |  

Results of operations of the acquisition are included in the condensed consolidated statements of
operations from the date of the acquisition. Pro forma results of the Company, assuming the acquisition had been made at the beginning of each period presented, would not have been materially different from the results reported.



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|C. | Goodwill and Other Intangible Assets
|-- | ------------------------------------

Goodwill and
other intangible assets consist of the following:



|                                                  |  |              |         |   |                  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                  |  | June 30,2008 |         |   | December 31,2007 |  
|Goodwill, cost                                    |  | $            | 184,468 |   |                  | $ | 175,933 |  
|                                                  |  |             
|Customer relationships, cost                      |  |              | 177,208 |   |                  |   | 168,070 |  
|Customer relationships, accumulated amortization  |  |              | (19,907 | ) |                  |   | (15,733 | )
|                                                  |  |             
|Other intangible assets, cost                     |  |              | 27,077  |   |                  |   | 26,327  |  
|Other intangible assets, accumulated amortization |  |              | (3,197  | ) |                  |   | (2,431  | )
|                                                  |  |              |         |   |                  |   |         |  
|                                                  |  | $            | 365,649 |   |                  | $ | 352,166 |  
|                                                  |  |              |         |   |                  |   |         |  

The change in goodwill, customer relationships (cost) and other intangible assets (cost) during
the six months ended June 30, 2008 is due to the following:



|                                                       |  |          |         |   |                              |   |         |                               |  |   |        |  
|------------------------------------------------------ |  | -------- | ------- | - | ---------------------------- | - | ------- | ----------------------------- |  | - | ------ | -
|                                                       |  | Goodwill |         |   | Customerrelationships (cost) |   |         | Other intangibleassets (cost) | 
|Balance at December 31, 2007                           |  | $        | 175,933 |   |                              | $ | 168,070 |                               |  | $ | 26,327 |  
|Acquisitions during the six months ended June 30, 2008 |  |          | 9,858   |   |                              |   | 9,896   |                               |  |   | 892    |  
|Changes due to foreign currency fluctuations           |  |          | (1,323  | ) |                              |   | (758    | )                             |  |   | (142   | )
|                                                       |  |          |         |   |                              |   |         |                               |  |   |        |  
|Balance at June 30, 2008                               |  | $        | 184,468 |   |                              | $ | 177,208 |                               |  | $ | 27,077 |  
|                                                       |  |          |         |   |                              |   |         |                               |  |   |        |  

Amortization of customer relationships and other intangible assets is estimated to be
approximately $10,300 annually from 2008 through 2012.



|D. | Interest Expense
|-- | ----------------

Interest expense consists of the
following:



|                                          |  |                                |       |                                |   |      
|----------------------------------------- |  | ------------------------------ | ----- | ------------------------------ | - | -----
|                                          |  | Three Months EndedJune 30,2008 |       | Three Months EndedJune 30,2007
|Interest on senior term loan              |  | $                              | 2,155 |                                | $ | 2,326
|Interest on senior subordinated notes     |  |                                | 6,000 |                                |   | 6,000
|Amortization of deferred financing costs  |  |                                | 377   |                                |   | 337  
|Commitment fees on senior credit facility |  |                                | 58    |                                |   | 108  
|Interest on acquisition facility          |  |                                | 567   |                                |   | 461  
|Other                                     |  |                                | 42    |                                |   | 44   
|                                          |  |                                |       |                                |   |      
|Total                                     |  | $                              | 9,199 |                                | $ | 9,276
|                                          |  |                                |       |                                |   |      



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|                                          |  |                              |        |                              |   |       
|----------------------------------------- |  | ---------------------------- | ------ | ---------------------------- | - | ------
|                                          |  | Six Months EndedJune 30,2008 |        | Six Months EndedJune 30,2007
|Interest on senior term loan              |  | $                            | 4,425  |                              | $ | 4,609 
|Interest on senior subordinated notes     |  |                              | 12,000 |                              |   | 12,000
|Amortization of deferred financing costs  |  |                              | 737    |                              |   | 695   
|Commitment fees on senior credit facility |  |                              | 128    |                              |   | 281   
|Interest on acquisition facility          |  |                              | 1,307  |                              |   | 567   
|Other                                     |  |                              | 104    |                              |   | 71    
|                                          |  |                              |        |                              |   |       
|Total                                     |  | $                            | 18,701 |                              | $ | 18,223
|                                          |  |                              |        |                              |   |       



|E. | Fair Value Measurements
|-- | -----------------------

The Company adopted SFAS
157 as of January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but does not require any additional
fair value measurements.

SFAS 157 provides a singular definition of fair value that preserves the exchange price notion that existed
in previous definitions of fair value; SFAS 157 clarified that fair value is the price to hypothetically sell an asset or transfer a liability in an orderly manner in the principal market for such asset or liability. SFAS 157 also
establishes a three-level hierarchy that prioritizes the inputs used in measuring fair values. Level 1 inputs are observable prices in active markets for identical assets and liabilities. Level 2 inputs are quoted prices for similar assets and
liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. Level 3 inputs are unobservable inputs based on the Companys assumptions used to measure assets
and liabilities at fair value. A financial assets or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities measured at fair value as of June 30, 2008:



|                          |  |                                      |         |                                                                                       |   |        
|------------------------- |  | ------------------------------------ | ------- | ------------------------------------------------------------------------------------- | - | -------
|                          |  | Total Carrying Valueat June 30, 2008 |         | Fair Value Measurementsat June 30, 2008Using
Quoted Prices inActive Markets (Level 1)
|Senior subordinated notes |  | $                                    | 200,000 |                                                                                       | $ | 172,000



|F. | Contingencies and Commitments
|-- | -----------------------------

Various lawsuits,
claims and proceedings have been or may be instituted or asserted against entities within the Company. While the amounts claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist.
Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on currently available facts and in light of legal and other defenses available to us,
management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on the Companys financial position, results of operations, and liquidity.



|G. | Income Taxes
|-- | ------------

The effective tax rates for the
quarter and six months ended June 30, 2008 were 54.5% and 54.6%, respectively, compared to 34.2% and 32.4% for the quarter and six months ended June 30, 2007, respectively. The increase in the effective tax rate was primarily due to the
impact of expenses not fully deductible for income tax purposes. Since income (loss) before income taxes was closer to zero for both the quarter and six months ended June 30,



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2008 than for the quarter and six months ended June 30, 2007, the impact of expenses not fully deductible for income tax purposes was more significant
for the periods in 2008 than for the comparable periods in 2007.

The Company has not recorded a deferred tax liability for undistributed
earnings of certain international subsidiaries because such earnings are considered permanently invested in foreign countries. As of June 30, 2008, undistributed earnings of international subsidiaries considered permanently reinvested were
approximately $1,538. The unrecognized deferred tax liability is dependent on many factors, including withholding taxes under current tax treaties and foreign tax credits. Determination of the amount of unrecognized deferred income tax liability
related to these earnings is not practicable. The Company does not consider undistributed earnings from certain other international operations to be permanently reinvested. A portion of the estimated tax liabilities upon repatriation of earnings
from these international operations is expected to be offset with foreign tax credits.



|H. | Supplemental Guarantor Information
|-- | ----------------------------------

The
Companys debt includes the senior credit facility and the 12% senior subordinated notes. The U.S. borrowings under the senior credit facility have been guaranteed by Southern Graphics Inc. (the parent of SGS International, Inc.), Southern
Graphic Systems, Inc. and Project Dove Holdco, Inc. The Canadian borrowings under the senior credit facility have been guaranteed by SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, MCG Graphics Limited, Southern Graphic Systems
Mexico, S. De R.L. De C.V., The Box Room Limited, SGS Packaging Netherlands, B.V., McGurk Studios Limited, Thames McGurk Limited, SGS Asia Pacific Limited, Southern Graphic Systems, Inc., Project Dove Holdco, Inc., Project Dove Manitoba, L.P.,
Southern Graphics Inc., SGS International, Inc., 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications, Ltd., Flex-Art Design Inc., Backwell Design Inc., and Gemini Graphic Imaging Inc. The senior subordinated
notes are general unsecured obligations and are guaranteed on a senior subordinated basis by the Companys domestic subsidiaries and rank secondary to the Companys senior credit facility. Guarantor subsidiaries for the senior subordinated
notes include Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. Non- Guarantor subsidiaries for the senior subordinated notes include the direct and indirect foreign subsidiaries. The subsidiary guarantors are 100% owned by SGS
International, Inc., the guarantees are full and unconditional, and the guarantees are joint and several.

Following are condensed
consolidating financial statements of the Company. Investments in subsidiaries are either consolidated or accounted for under the equity method of accounting. Intercompany balances and transactions have been eliminated.



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

June 30, 2008



|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|------------------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | ------------------------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | -------
|                                                        |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated
|Assets                                                  |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Current assets                                          |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Cash and cash equivalents                               |  | $              | 1,074   |                                   | $ | 4,580                                 |  | $ | 8,636        |   |  | $            |         |   |  | $ | 14,290 
|Receivables from customers, less allowances             |  |                |        |                                   |   | 37,384                                |  |   | 23,574       |   |  |              |         |   |  |   | 60,958 
|Intercompany receivables                                |  |                | 381,369 |                                   |   | 70,320                                |  |   | 4,086        |   |  |              | (455,775 | ) |  |   |       
|Inventories                                             |  |                |        |                                   |   | 5,093                                 |  |   | 3,144        |   |  |              |         |   |  |   | 8,237  
|Deferred income taxes                                   |  |                | 743     |                                   |   | 572                                   |  |   | 147          |   |  |              |         |   |  |   | 1,462  
|Prepaid expenses and other current assets               |  |                | 100     |                                   |   | 7,878                                 |  |   | 3,142        |   |  |              |         |   |  |   | 11,120 
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Total current assets                                    |  |                | 383,286 |                                   |   | 125,827                               |  |   | 42,729       |   |  |              | (455,775 | ) |  |   | 96,067 
|Investment in subsidiaries                              |  |                | 131,290 |                                   |   | 33,694                                |  |   | 62,919       |   |  |              | (227,903 | ) |  |   |       
|Properties, plants and equipment, net                   |  |                |        |                                   |   | 39,804                                |  |   | 11,940       |   |  |              |         |   |  |   | 51,744 
|Goodwill                                                |  |                |        |                                   |   | 119,962                               |  |   | 64,506       |   |  |              |         |   |  |   | 184,468
|Other intangible assets, net                            |  |                |        |                                   |   | 125,604                               |  |   | 55,577       |   |  |              |         |   |  |   | 181,181
|Deferred financing costs, net                           |  |                | 8,229   |                                   |   |                                      |  |   |             |   |  |              |         |   |  |   | 8,229  
|Deferred income taxes                                   |  |                | 1,281   |                                   |   | 539                                   |  |   |             |   |  |              | (1,820   | ) |  |   |       
|Other assets                                            |  |                |        |                                   |   | 163                                   |  |   | 340          |   |  |              |         |   |  |   | 503    
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Total assets                                            |  | $              | 524,086 |                                   | $ | 445,593                               |  | $ | 238,011      |   |  | $            | (685,498 | ) |  | $ | 522,192
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Liabilities                                             |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Current liabilities                                     |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Accounts payable, trade                                 |  | $              | 239     |                                   | $ | 10,119                                |  | $ | 6,835        |   |  | $            |         |   |  | $ | 17,193 
|Intercompany payables                                   |  |                | 69,136  |                                   |   | 349,544                               |  |   | 37,095       |   |  |              | (455,775 | ) |  |   |       
|Accrued compensation                                    |  |                |        |                                   |   | 4,267                                 |  |   | 1,305        |   |  |              |         |   |  |   | 5,572  
|Accrued taxes, including taxes on income                |  |                |        |                                   |   | 516                                   |  |   | 2,408        |   |  |              |         |   |  |   | 2,924  
|Accrued interest                                        |  |                | 6       |                                   |   | 1,012                                 |  |   | (2           | ) |  |              |         |   |  |   | 1,016  
|Other current liabilities                               |  |                |        |                                   |   | 4,638                                 |  |   | 3,031        |   |  |              |         |   |  |   | 7,669  
|Current portion of short-term and long-term obligations |  |                | 1,400   |                                   |   | 508                                   |  |   | 265          |   |  |              |         |   |  |   | 2,173  
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Total current liabilities                               |  |                | 70,781  |                                   |   | 370,604                               |  |   | 50,937       |   |  |              | (455,775 | ) |  |   | 36,547 
|Noncurrent liabilities                                  |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Long-term obligations, net of current portion           |  |                | 335,954 |                                   |   | 902                                   |  |   | 22,273       |   |  |              |         |   |  |   | 359,129
|Noncurrent liabilities                                  |  |                |        |                                   |   |                                      |  |   | 264          |   |  |              |         |   |  |   | 264    
|Deferred income taxes                                   |  |                |        |                                   |   |                                      |  |   | 10,721       |   |  |              | (1,820   | ) |  |   | 8,901  
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Total noncurrent liabilities                            |  |                | 335,954 |                                   |   | 902                                   |  |   | 33,258       |   |  |              | (1,820   | ) |  |   | 368,294
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Total liabilities                                       |  |                | 406,735 |                                   |   | 371,506                               |  |   | 84,195       |   |  |              | (457,595 | ) |  |   | 404,841
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Contingencies and commitments                           |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Stockholders equity                                    |  |                | 117,351 |                                   |   | 74,087                                |  |   | 153,816      |   |  |              | (227,903 | ) |  |   | 117,351
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        
|Total liabilities and stockholders equity              |  | $              | 524,086 |                                   | $ | 445,593                               |  | $ | 238,011      |   |  | $            | (685,498 | ) |  | $ | 522,192
|                                                        |  |                |         |                                   |   |                                       |  |   |              |   |  |              |          |   |  |   |        



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

December 31, 2007



|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|--------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | ------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                              |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|Assets                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current assets                                |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                     |  | $              | 17,515  |                                   | $ | 3,068                                 |  | $            | 13,884  |  | $            |         |   |  | $ | 34,467 
|Receivables from customers, less allowances   |  |                |        |                                   |   | 38,712                                |  |              | 22,430  |  |              |         |   |  |   | 61,142 
|Intercompany receivables                      |  |                | 312,755 |                                   |   | 53,455                                |  |              | 42,209  |  |              | (408,419 | ) |  |   |       
|Inventories                                   |  |                |        |                                   |   | 5,013                                 |  |              | 2,705   |  |              |         |   |  |   | 7,718  
|Deferred income taxes                         |  |                |        |                                   |   | 508                                   |  |              | 67      |  |              |         |   |  |   | 575    
|Prepaid expenses and other current assets     |  |                | 10      |                                   |   | 8,119                                 |  |              | 2,910   |  |              |         |   |  |   | 11,039 
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current assets                          |  |                | 330,280 |                                   |   | 108,875                               |  |              | 84,205  |  |              | (408,419 | ) |  |   | 114,941
|Investment in subsidiaries                    |  |                | 117,232 |                                   |   | 23,001                                |  |              | 36,567  |  |              | (176,800 | ) |  |   |       
|Properties, plants and equipment, net         |  |                |        |                                   |   | 43,058                                |  |              | 10,310  |  |              |         |   |  |   | 53,368 
|Goodwill                                      |  |                |        |                                   |   | 119,962                               |  |              | 55,971  |  |              |         |   |  |   | 175,933
|Other intangible assets, net                  |  |                |        |                                   |   | 129,219                               |  |              | 47,014  |  |              |         |   |  |   | 176,233
|Deferred financing costs, net                 |  |                | 8,848   |                                   |   |                                      |  |              |        |  |              |         |   |  |   | 8,848  
|Deferred income taxes                         |  |                | 1,320   |                                   |   | 460                                   |  |              |        |  |              | (1,780   | ) |  |   |       
|Other assets                                  |  |                | 47      |                                   |   | 184                                   |  |              | 652     |  |              |         |   |  |   | 883    
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total assets                                  |  | $              | 457,727 |                                   | $ | 424,759                               |  | $            | 234,719 |  | $            | (586,999 | ) |  | $ | 530,206
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Liabilities                                   |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current liabilities                           |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Accounts payable, trade                       |  | $              | 428     |                                   | $ | 15,389                                |  | $            | 6,529   |  | $            |         |   |  | $ | 22,346 
|Intercompany payables                         |  |                |        |                                   |   | 330,874                               |  |              | 77,545  |  |              | (408,419 | ) |  |   |       
|Accrued compensation                          |  |                |        |                                   |   | 6,185                                 |  |              | 1,743   |  |              |         |   |  |   | 7,928  
|Accrued taxes, including taxes on income      |  |                |        |                                   |   | 273                                   |  |              | 2,124   |  |              |         |   |  |   | 2,397  
|Accrued interest                              |  |                | 23      |                                   |   | 1,018                                 |  |              | 7       |  |              |         |   |  |   | 1,048  
|Other current liabilities                     |  |                |        |                                   |   | 4,438                                 |  |              | 2,663   |  |              |         |   |  |   | 7,101  
|Current portion of long-term obligations      |  |                | 1,401   |                                   |   | 507                                   |  |              | 318     |  |              |         |   |  |   | 2,226  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                     |  |                | 1,852   |                                   |   | 358,684                               |  |              | 90,929  |  |              | (408,419 | ) |  |   | 43,046 
|Noncurrent liabilities                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Long-term obligations, net of current portion |  |                | 336,665 |                                   |   | 1,127                                 |  |              | 23,067  |  |              |         |   |  |   | 360,859
|Noncurrent liabilities                        |  |                |        |                                   |   | 1,042                                 |  |              | 356     |  |              |         |   |  |   | 1,398  
|Deferred income taxes                         |  |                |        |                                   |   |                                      |  |              | 7,473   |  |              | (1,780   | ) |  |   | 5,693  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total noncurrent liabilities                  |  |                | 336,665 |                                   |   | 2,169                                 |  |              | 30,896  |  |              | (1,780   | ) |  |   | 367,950
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities                             |  |                | 338,517 |                                   |   | 360,853                               |  |              | 121,825 |  |              | (410,199 | ) |  |   | 410,996
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Contingencies and commitments                 |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Stockholders equity                          |  |                | 119,210 |                                   |   | 63,906                                |  |              | 112,894 |  |              | (176,800 | ) |  |   | 119,210
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity    |  | $              | 457,727 |                                   | $ | 424,759                               |  | $            | 234,719 |  | $            | (586,999 | ) |  | $ | 530,206
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Three Months Ended June 30, 2008



|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|------------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------ | ------------------------------------- |  | ------------ | ------ |  | ------------ | ------ | - |  | - | ------ | -
|                                                  |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated |       
|Revenues                                          |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Sales                                             |  | $              |       |   |                                   | $ | 55,593 |                                       |  | $            | 28,899 |  | $            |       |   |  | $ | 84,492 |  
|Sales to related parties                          |  |                |       |   |                                   |   | 719    |                                       |  |              | 2,716  |  |              | (3,435 | ) |  |   |       |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Total revenues                                    |  |                |       |   |                                   |   | 56,312 |                                       |  |              | 31,615 |  |              | (3,435 | ) |  |   | 84,492 |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Costs and expenses                                |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Cost of goods sold                                |  |                |       |   |                                   |   | 36,561 |                                       |  |              | 22,750 |  |              | (3,435 | ) |  |   | 55,876 |  
|Selling, general and administrative expenses      |  |                | 434    |   |                                   |   | 7,816  |                                       |  |              | 3,982  |  |              |       |   |  |   | 12,232 |  
|Depreciation and amortization                     |  |                |       |   |                                   |   | 5,389  |                                       |  |              | 1,818  |  |              |       |   |  |   | 7,207  |  
|Interest expense                                  |  |                | 1,001  |   |                                   |   | 7,544  |                                       |  |              | 654    |  |              |       |   |  |   | 9,199  |  
|Other (income) expense, net                       |  |                | (1,586 | ) |                                   |   | 311    |                                       |  |              | 561    |  |              |       |   |  |   | (714   | )
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Total costs and expenses                          |  |                | (151   | ) |                                   |   | 57,621 |                                       |  |              | 29,765 |  |              | (3,435 | ) |  |   | 83,800 |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Equity in net income (loss) of subsidiaries       |  |                | (72    | ) |                                   |   |       |                                       |  |              |       |  |              | 72     |   |  |   |       |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Income (loss) from operations before income taxes |  |                | 79     |   |                                   |   | (1,309 | )                                     |  |              | 1,850  |  |              | 72     |   |  |   | 692    |  
|Provision (benefit) for taxes on income (loss)    |  |                | (236   | ) |                                   |   | (444   | )                                     |  |              | 1,057  |  |              |       |   |  |   | 377    |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  
|Net income (loss)                                 |  | $              | 315    |   |                                   | $ | (865   | )                                     |  | $            | 793    |  | $            | 72     |   |  | $ | 315    |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |        |  



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Three Months Ended June 30, 2007



|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|------------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------ | -
|                                                  |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |       
|Revenues                                          |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Sales                                             |  | $              |       |   |                                   | $ | 54,847 |                                       |  | $ | 25,516       |   |  | $            |       |   |  | $ | 80,363 |  
|Sales to related parties                          |  |                |       |   |                                   |   | 1,027  |                                       |  |   | 139          |   |  |              | (1,166 | ) |  |   |       |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Total revenues                                    |  |                |       |   |                                   |   | 55,874 |                                       |  |   | 25,655       |   |  |              | (1,166 | ) |  |   | 80,363 |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Costs and expenses                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Cost of goods sold                                |  |                |       |   |                                   |   | 35,440 |                                       |  |   | 19,783       |   |  |              | (1,166 | ) |  |   | 54,057 |  
|Selling, general and administrative expenses      |  |                | 566    |   |                                   |   | 9,594  |                                       |  |   | 2,278        |   |  |              |       |   |  |   | 12,438 |  
|Depreciation and amortization                     |  |                |       |   |                                   |   | 4,284  |                                       |  |   | 1,508        |   |  |              |       |   |  |   | 5,792  |  
|Interest expense                                  |  |                | 926    |   |                                   |   | 7,748  |                                       |  |   | 602          |   |  |              |       |   |  |   | 9,276  |  
|Other (income) expense, net                       |  |                | (1,506 | ) |                                   |   | 86     |                                       |  |   | 1,901        |   |  |              |       |   |  |   | 481    |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Total costs and expenses                          |  |                | (14    | ) |                                   |   | 57,152 |                                       |  |   | 26,072       |   |  |              | (1,166 | ) |  |   | 82,044 |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Equity in net income (loss) of subsidiaries       |  |                | (1,294 | ) |                                   |   |       |                                       |  |   |             |   |  |              | 1,294  |   |  |   |       |  
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Income (loss) from operations before income taxes |  |                | (1,280 | ) |                                   |   | (1,278 | )                                     |  |   | (417         | ) |  |              | 1,294  |   |  |   | (1,681 | )
|Provision (benefit) for taxes on income (loss)    |  |                | (174   | ) |                                   |   | (406   | )                                     |  |   | 5            |   |  |              |       |   |  |   | (575   | )
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  
|Net income (loss)                                 |  | $              | (1,106 | ) |                                   | $ | (872   | )                                     |  | $ | (422         | ) |  | $            | 1,294  |   |  | $ | (1,106 | )
|                                                  |  |                |        |   |                                   |   |        |                                       |  |   |              |   |  |              |        |   |  |   |        |  



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Six Months Ended June 30, 2008



|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|------------------------------------------------------------ |  | -------------- | ------ | - | --------------------------------- | - | ------- | ------------------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                             |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |       
|Revenues                                                     |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Sales                                                        |  | $              |       |   |                                   | $ | 111,045 |                                       |  | $ | 56,698       |   |  | $            |       |   |  | $ | 167,743 |  
|Sales to related parties                                     |  |                |       |   |                                   |   | 1,898   |                                       |  |   | 3,911        |   |  |              | (5,809 | ) |  |   |        |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Total revenues                                               |  |                |       |   |                                   |   | 112,943 |                                       |  |   | 60,609       |   |  |              | (5,809 | ) |  |   | 167,743 |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Costs and expenses                                           |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Cost of goods sold                                           |  |                |       |   |                                   |   | 71,824  |                                       |  |   | 44,173       |   |  |              | (5,809 | ) |  |   | 110,188 |  
|Selling, general and administrative expenses                 |  |                | 785    |   |                                   |   | 16,261  |                                       |  |   | 7,771        |   |  |              |       |   |  |   | 24,817  |  
|Depreciation and amortization                                |  |                |       |   |                                   |   | 10,223  |                                       |  |   | 3,477        |   |  |              |       |   |  |   | 13,700  |  
|Interest expense                                             |  |                | 2,172  |   |                                   |   | 15,195  |                                       |  |   | 1,334        |   |  |              |       |   |  |   | 18,701  |  
|Other (income) expense, net                                  |  |                | (3,137 | ) |                                   |   | 95      |                                       |  |   | 2,689        |   |  |              |       |   |  |   | (353    | )
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Total costs and expenses                                     |  |                | (180   | ) |                                   |   | 113,598 |                                       |  |   | 59,444       |   |  |              | (5,809 | ) |  |   | 167,053 |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Equity in net income (loss) of subsidiaries                  |  |                | (571   | ) |                                   |   |        |                                       |  |   |             |   |  |              | 571    |   |  |   |        |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income (loss) from continuing operations before income taxes |  |                | (391   | ) |                                   |   | (655    | )                                     |  |   | 1,165        |   |  |              | 571    |   |  |   | 690     |  
|Provision (benefit) for taxes on income (loss)               |  |                | (704   | ) |                                   |   | (144    | )                                     |  |   | 1,225        |   |  |              |       |   |  |   | 377     |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income (loss) from continuing operations                     |  |                | 313    |   |                                   |   | (511    | )                                     |  |   | (60          | ) |  |              | 571    |   |  |   | 313     |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from discontinued operations                          |  |                |       |   |                                   |   |        |                                       |  |   |             |   |  |              |       |   |  |   |        |  
|Provision for taxes on income                                |  |                |       |   |                                   |   |        |                                       |  |   |             |   |  |              |       |   |  |   |        |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Net income (loss)                                            |  | $              | 313    |   |                                   | $ | (511    | )                                     |  | $ | (60          | ) |  | $            | 571    |   |  | $ | 313     |  
|                                                             |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Six Months Ended June 30, 2007



|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|------------------------------------------------------------ |  | -------------- | ------ | - | --------------------------------- | - | ------- | ------------------------------------- |  | ------------ | ------ |  | ------------ | ------ | - |  | - | -------
|                                                             |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated
|Revenues                                                     |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Sales                                                        |  | $              |       |   |                                   | $ | 109,894 |                                       |  | $            | 45,595 |  | $            |       |   |  | $ | 155,489
|Sales to related parties                                     |  |                |       |   |                                   |   | 2,120   |                                       |  |              | 561    |  |              | (2,681 | ) |  |   |       
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Total revenues                                               |  |                |       |   |                                   |   | 112,014 |                                       |  |              | 46,156 |  |              | (2,681 | ) |  |   | 155,489
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Costs and expenses                                           |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Cost of goods sold                                           |  |                |       |   |                                   |   | 71,024  |                                       |  |              | 34,605 |  |              | (2,681 | ) |  |   | 102,948
|Selling, general and administrative expenses                 |  |                | 1,181  |   |                                   |   | 18,011  |                                       |  |              | 3,547  |  |              |       |   |  |   | 22,739 
|Depreciation and amortization                                |  |                |       |   |                                   |   | 8,283   |                                       |  |              | 2,614  |  |              |       |   |  |   | 10,897 
|Interest expense                                             |  |                | 1,583  |   |                                   |   | 15,477  |                                       |  |              | 1,163  |  |              |       |   |  |   | 18,223 
|Other (income) expense, net                                  |  |                | (1,713 | ) |                                   |   | (3      | )                                     |  |              | 1,905  |  |              |       |   |  |   | 189    
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Total costs and expenses                                     |  |                | 1,051  |   |                                   |   | 112,792 |                                       |  |              | 43,834 |  |              | (2,681 | ) |  |   | 154,996
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Equity in net income of subsidiaries                         |  |                | 1,385  |   |                                   |   |        |                                       |  |              |       |  |              | (1,385 | ) |  |   |       
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Income (loss) from continuing operations before income taxes |  |                | 334    |   |                                   |   | (778    | )                                     |  |              | 2,322  |  |              | (1,385 | ) |  |   | 493    
|Provision (benefit) for taxes on income (loss)               |  |                | (569   | ) |                                   |   | (186    | )                                     |  |              | 1,017  |  |              |       |   |  |   | 262    
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Income (loss) from continuing operations                     |  |                | 903    |   |                                   |   | (592    | )                                     |  |              | 1,305  |  |              | (1,385 | ) |  |   | 231    
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Income from discontinued operations                          |  |                |       |   |                                   |   |        |                                       |  |              | 842    |  |              |       |   |  |   | 842    
|Provision for taxes on income                                |  |                |       |   |                                   |   |        |                                       |  |              | 170    |  |              |       |   |  |   | 170    
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        
|Net income (loss)                                            |  | $              | 903    |   |                                   | $ | (592    | )                                     |  | $            | 1,977  |  | $            | (1,385 | ) |  | $ | 903    
|                                                             |  |                |        |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |        



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SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2008



|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|----------------------------------------------- |  | -------------- | ------- | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash provided by operations                     |  | $              | 101     |   |                                   | $ | 4,754  |                                       |  | $ | 5,439        |   |              | $ |  |  | $ | 10,294  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Investing activities:                           |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Acquisition of properties, plants and equipment |  |                |        |   |                                   |   | (3,420 | )                                     |  |   | (2,282       | ) |              |   |  |  |   | (5,702  | )
|Proceeds from sale of equipment                 |  |                |        |   |                                   |   | 487    |                                       |  |   |             |   |              |   |  |  |   | 487     |  
|Business acquisitions, net of cash acquired     |  |                |        |   |                                   |   |       |                                       |  |   | (23,834      | ) |              |   |  |  |   | (23,834 | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash used in investing activities               |  |                |        |   |                                   |   | (2,933 | )                                     |  |   | (26,116      | ) |              |   |  |  |   | (29,049 | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Financing activities:                           |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Payments for deferred financing fees            |  |                | (117    | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (117    | )
|Payments on long-term debt                      |  |                | (700    | ) |                                   |   | (309   | )                                     |  |   | (183         | ) |              |   |  |  |   | (1,192  | )
|Intercompany financing, net                     |  |                | (15,725 | ) |                                   |   |       |                                       |  |   | 15,725       |   |              |   |  |  |   |        |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash provided by (used in) financing activities |  |                | (16,542 | ) |                                   |   | (309   | )                                     |  |   | 15,542       |   |              |   |  |  |   | (1,309  | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Effect of exchange rate changes on cash         |  |                |        |   |                                   |   |       |                                       |  |   | (113         | ) |              |   |  |  |   | (113    | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents         |  |                | (16,441 | ) |                                   |   | 1,512  |                                       |  |   | (5,248       | ) |              |   |  |  |   | (20,177 | )
|Cash and cash equivalents, beginning of period  |  |                | 17,515  |   |                                   |   | 3,068  |                                       |  |   | 13,884       |   |              |   |  |  |   | 34,467  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period        |  | $              | 1,074   |   |                                   | $ | 4,580  |                                       |  | $ | 8,636        |   |              | $ |  |  | $ | 14,290  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2007



|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                            |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash provided by operations                                 |  | $              | 4,373   |   |                                   | $ | 3,052  |                                       |  | $ | 3,564        |   |              | $ |  |  | $ | 10,989  |  
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Investing activities:                                       |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Acquisition of properties, plants and equipment             |  |                | (11     | ) |                                   |   | (5,319 | )                                     |  |   | (841         | ) |              |   |  |  |   | (6,171  | )
|Proceeds from divestiture of business, net of cash divested |  |                |        |   |                                   |   | 1,500  |                                       |  |   | (872         | ) |              |   |  |  |   | 628     |  
|Business acquisition, net of cash acquired                  |  |                | (27,737 | ) |                                   |   |       |                                       |  |   | (734         | ) |              |   |  |  |   | (28,471 | )
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash used in investing activities                           |  |                | (27,748 | ) |                                   |   | (3,819 | )                                     |  |   | (2,447       | ) |              |   |  |  |   | (34,014 | )
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Financing activities:                                       |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Borrowings on acquisition facility                          |  |                | 23,000  |   |                                   |   | 57     |                                       |  |   |             |   |              |   |  |  |   | 23,057  |  
|Payments on long-term debt                                  |  |                | (579    | ) |                                   |   | (12    | )                                     |  |   | (1,776       | ) |              |   |  |  |   | (2,367  | )
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash provided by (used in) financing activities             |  |                | 22,421  |   |                                   |   | 45     |                                       |  |   | (1,776       | ) |              |   |  |  |   | 20,690  |  
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Effect of exchange rate changes on cash                     |  |                |        |   |                                   |   |       |                                       |  |   | 452          |   |              |   |  |  |   | 452     |  
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents                     |  |                | (954    | ) |                                   |   | (722   | )                                     |  |   | (207         | ) |              |   |  |  |   | (1,883  | )
|Cash and cash equivalents, beginning of period              |  |                | 2,100   |   |                                   |   | 2,285  |                                       |  |   | 8,273        |   |              |   |  |  |   | 12,658  |  
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period                    |  | $              | 1,146   |   |                                   | $ | 1,563  |                                       |  | $ | 8,066        |   |              | $ |  |  | $ | 10,775  |  
|                                                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Item 1,  Financial Statements in Part I of this quarterly
report on Form 10-Q.

The statements in the discussion and analysis regarding our expectations regarding the performance of our business, our liquidity and
capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by
any of these forward-looking statements. You should read the following discussion together with the financial statements and the related notes included elsewhere in this report.

Overview

We are a global leader in the digital imaging industry, offering design-to-print graphic services to the
international consumer products packaging market in North America, Europe and Asia. Our global service platform and financial capability provide a distinct competitive advantage over the majority of companies in our industry. We offer a full
spectrum of innovative digital solutions that streamline the capture, management, execution, and distribution of graphics information. Our brand development, creative design, prepress, image carriers and print support services are utilized in each
of the three main printing processes: flexography, gravure and lithography. Our customers, many of which we have served for over 20 years, include large branded consumer products companies, mass merchant retailers and the printers and converters
that service them. Our services ensure that our customers are able to obtain or produce consistent, high quality packaging materials often on short turnaround times.

In 2008, we have continued our strategy of making tactical acquisitions. We acquired 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flex-Art Design Inc.
(collectively Tri-Ad) in January and Backwell Design Inc. and Gemini Graphic Imaging Inc. (together with Backwell Design Inc. Backwell) in May. Tri-Ad is a Canadian provider of packaging and retail graphics services with
locations in Toronto, Ontario and outside of Montreal, Quebec. Backwell is a Canadian provider of packaging and retail graphics services located in London, Ontario.

While we continue to successfully grow our business in 2008 through tactical acquisitions, sales from our base business were $152.9 million for the first six months of 2008 compared to $155.5 million for the first
quarter of 2007. This decrease is due to price erosion in the industry of approximately 2% to 3%; however, we continued to hold our market share during this period.

In addition, we mitigated the negative impact of price concessions on sales from our base business through effective cost control measures. Cost of goods sold (exclusive of depreciation) as a percentage of sales for
our entire business was 65.7% for the first six months of 2008, compared to 66.2% for the first six months of 2007. The effective control of costs was partially due to the process of consolidating certain operations in North America and headcount
reductions during 2007.

RESULTS OF OPERATIONS

The
information presented below for the three months ended June 30, 2008 and 2007 was prepared by management and is unaudited. In the opinion of management, all adjustments necessary for a fair statement of our financial position and operating
results for such quarters and as of such dates have been included. (Dollar amounts in the table below are in thousands and percentages are expressed as a percentage of sales.)



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Quarter ended June 30, 2008 compared to quarter ended June 30, 2007



|                                                                |  |                                 |        |   |                                 |       |   |  |   |        |   |  |       |  
|--------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | ----- | - |  | - | ------ | - |  | ----- | -
|                                                                |  | Three Months EndedJune 30, 2008 |        |   | Three Months EndedJune 30, 2007 |      
|                                                                |  | (unaudited)                     |        |   | (unaudited)                     |      
|Sales                                                           |  | $                               | 84,492 |   |                                 | 100.0 | % |  | $ | 80,363 |   |  | 100.0 | %
|Cost of goods sold (exclusive of depreciation)                  |  |                                 | 55,876 |   |                                 | 66.1  | % |  |   | 54,057 |   |  | 67.3  | %
|Selling, general, and administrative expenses                   |  |                                 | 12,232 |   |                                 | 14.5  | % |  |   | 12,438 |   |  | 15.5  | %
|Depreciation and amortization                                   |  |                                 | 7,207  |   |                                 | 8.5   | % |  |   | 5,792  |   |  | 7.2   | %
|                                                                |  |                                 |        |   |                                 |       |   |  |   |        |   |  |       |  
|Income from operations                                          |  |                                 | 9,177  |   |                                 | 10.9  | % |  |   | 8,076  |   |  | 10.0  | %
|Interest expense                                                |  |                                 | 9,199  |   |                                 | 10.9  | % |  |   | 9,276  |   |  | 11.5  | %
|Other expense (income), net                                     |  |                                 | (714   | ) |                                 | -0.8  | % |  |   | 481    |   |  | 0.6   | %
|                                                                |  |                                 |        |   |                                 |       |   |  |   |        |   |  |       |  
|Income from (loss on) continuing operations before income taxes |  |                                 | 692    |   |                                 | 0.8   | % |  |   | (1,681 | ) |  | -2.1  | %
|Provision (benefit) for income taxes                            |  |                                 | 377    |   |                                 | 0.4   | % |  |   | (575   | ) |  | -0.7  | %
|                                                                |  |                                 |        |   |                                 |       |   |  |   |        |   |  |       |  
|Net income (loss)                                               |  | $                               | 315    |   |                                 | 0.4   | % |  | $ | (1,106 | ) |  | -1.4  | %
|                                                                |  |                                 |        |   |                                 |       |   |  |   |        |   |  |       |  

Sales. Sales increased 5.1%, or $4.1 million, to $84.5 million for the quarter ended June 30, 2008
from $80.4 million for the quarter ended June 30, 2007. The acquisition of Tri-Ad in Canada on January 1, 2008 and the acquisition of Backwell in Canada on May 2, 2007 added sales of $4.8 million and $0.3 million, respectively, for
the quarter ended June 30, 2008.

Sales in the United States increased by $0.7 million for the quarter ended June 30, 2008 compared to the
quarter ended June 30, 2007. This increase was primarily due to the timing of orders from customers in the quarter ended June 30, 2007 having a positive impact on sales for that quarter. Offsetting this increase was a reduction in sales of
approximately 2% to 3% due to price erosion. After excluding the impact of sales generated from acquisitions, sales in Canada decreased by $0.9 million for the quarter ended June 30, 2008 primarily due to price erosion and an overall softness
in our Canadian markets during the quarter ended June 30, 2008. The decrease in sales in Canada would have been $2.0 million; however, the weakening of the United States dollar compared to the Canadian dollar positively impacted sales in Canada
by $1.1 million. Sales in the United Kingdom decreased by $0.6 million for the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. This decrease was primarily due to price erosion. Sales in continental Europe increased
by $0.1 million for the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. This increase was due to the weakening of the United States dollar compared to the Euro.

Cost of Goods Sold. Cost of goods sold for the quarter ended June 30, 2008 increased 3.4%, or $1.8 million, to $55.9 million from $54.1 million for the
quarter ended June 30, 2007. Cost of good sold as a percentage of sales decreased to 66.1% for the quarter ended June 30, 2008 from 67.3% for the quarter ended June 30, 2007. The acquisitions of Tri-Ad and Backwell previously
discussed added incremental costs of goods sold in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007 of $2.8 million for Tri-Ad and $0.2 million for Backwell. Cost of goods sold increased an additional $0.9
million for the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007 due to the weakening of the United States dollar compared to the Canadian dollar. The fluctuation of the United States dollar compared to other
currencies did not have a significant impact on cost of sales during the quarter ended June 30, 2007. After excluding the incremental costs associated with acquisitions and the foreign currency impact, the remaining impact was a decrease in
cost of goods sold of $2.1 million for the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. This decrease was primarily due to the realization of benefits from consolidating certain operations in North America
during 2007 and the soft Canadian sales during the quarter ended June 30, 2008.

Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the quarter ended June 30, 2008 decreased 1.7%, or $0.2 million, to $12.2 million from $12.4 million for the quarter ended June 30, 2007. The acquisitions of Tri-Ad and Backwell previously discussed added
$0.9 million of incremental expenses in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. This increase was offset by a $0.7 million reduction of non-recurring expenses associated with integrating business
acquisitions and severance costs associated with consolidating certain operations in North America. The remaining fluctuation in selling, general and administrative expenses is not significant.

Depreciation and Amortization Expenses. Depreciation and amortization expenses for the quarter ended June 30, 2008 increased 24.4%, or $1.4 million, to $7.2
million from $5.8 million for the quarter ended June 30, 2007. Depreciation and amortization expense increased $0.7 million due to a change in the remaining useful life for production software that is being replaced. The expense associated
with this production software was $1.0 million for the quarter ended June 30, 2008 compared to $0.3 million for the quarter ended June 30, 2007. In addition, the acquisitions of Tri-Ad and Backwell previously discussed added $0.4
million of incremental expenses in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. The remaining increase of $0.3 million was primarily due to depreciation and amortization on assets acquired or placed in
service during 2007 and 2008.

Interest Expense. Interest expense for the quarter ended June 30, 2008 decreased 0.8%, or $0.1 million, to $9.2
million from $9.3 million for the quarter ended June 30, 2007. This decrease was due to lower interest rates on the senior secured term loan during the quarter ended June 30, 2008 than the quarter ended June 30, 2007. Interest expense
on the senior secured term loan was $2.1 million for the quarter ended June 30, 2008 compared to $2.3 million for the quarter ended June 30, 2007. This decrease was partially offset by an increase in interest expense on the senior secured
acquisition facility due to borrowings made in connection with the Tri-Ad acquisition previously discussed. Interest expense from borrowings on the senior secured acquisition facility was $0.6 million in the quarter ended June 30, 2008 compared
to $0.5 million in the quarter ended June 30, 2007.

Other Expense (Income), net.Other expenses, net for the quarter ended June 30, 2008
decreased by $1.2 million to $0.7 million of income from $0.5 million of expense for the quarter ended June 30, 2007. Other expense, net, primarily consists of realized (gains) losses on foreign exchange, net of interest income. The fluctuation
from the quarter ended June 30, 2008 to the quarter ended June 30, 2007 was primarily due to a more favorable fluctuation in United States dollar and Canadian dollar exchange rates during the second quarter of 2008 compared to the same
period of 2007.

Provision for income taxes. The effective tax rate for the quarter ended June 30, 2008 was 54.5%, compared to 34.2% for the
quarter ended June 30, 2007. The increase in the effective tax rate is primarily due to expenses not fully deductible for income tax purposes having a larger impact on the effective tax rate for the quarter ended June 30, 2008 than for the
quarter ended June 30, 2007. This larger impact in the quarter ended June 30, 2008 than the quarter ended June 30, 2007 is due to the income before income taxes for the quarter ended June 30, 2008 being closer to zero than the
loss before income taxes for the quarter ended June 30, 2007.

Six months ended June 30, 2008 compared to six months ended June 30, 2007



|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  
|----------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------------------- | ----- | - |  | - | ------- |  | ----- | -
|                                                      |  | Six Months EndedJune 30, 2008 |         |   | Six Months EndedJune 30, 2007 |      
|                                                      |  | (unaudited)                   |         |   | (unaudited)                   |      
|Sales                                                 |  | $                             | 167,743 |   |                               | 100.0 | % |  | $ | 155,489 |  | 100.0 | %
|Cost of goods sold (exclusive of depreciation)        |  |                               | 110,188 |   |                               | 65.7  | % |  |   | 102,948 |  | 66.2  | %
|Selling, general, and administrative expenses         |  |                               | 24,817  |   |                               | 14.8  | % |  |   | 22,739  |  | 14.6  | %
|Depreciation and amortization                         |  |                               | 13,700  |   |                               | 8.2   | % |  |   | 10,897  |  | 7.0   | %
|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  
|Income from operations                                |  |                               | 19,038  |   |                               | 11.3  | % |  |   | 18,905  |  | 12.2  | %
|Interest expense                                      |  |                               | 18,701  |   |                               | 11.1  | % |  |   | 18,223  |  | 11.7  | %
|Other expense, net                                    |  |                               | (353    | ) |                               | -0.2  | % |  |   | 189     |  | 0.1   | %
|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  
|Income from continuing operations before income taxes |  |                               | 690     |   |                               | 0.4   | % |  |   | 493     |  | 0.3   | %
|Provision for income taxes                            |  |                               | 377     |   |                               | 0.2   | % |  |   | 262     |  | 0.2   | %
|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  
|Income from continuing operations                     |  |                               | 313     |   |                               | 0.2   | % |  |   | 231     |  | 0.1   | %
|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  
|Income from discontinued operations                   |  |                               |        |   |                               | 0.0   | % |  |   | 842     |  | 0.5   | %
|Provision for income taxes on discontinued operations |  |                               |        |   |                               | 0.0   | % |  |   | 170     |  | 0.1   | %
|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  
|Net income                                            |  | $                             | 313     |   |                               | 0.2   | % |  | $ | 903     |  | 0.6   | %
|                                                      |  |                               |         |   |                               |       |   |  |   |         |  |       |  



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##### Table of Contents

Sales. Sales increased 7.9%, or $12.2 million, to $167.7 million for the quarter ended June 30, 2008 from
$155.5 million for the quarter ended June 30, 2007. The acquisition of Tri-Ad in Canada on January 1, 2008 added sales of $9.5 million for the six months ended June 30, 2008. The acquisition of Backwell in Canada on May 2, 2008
added sales of $0.3 million for the quarter ended June 30, 2008. The acquisition of McGurk Studios Limited and Thames McGurk Limited (together, McGurk) in the United Kingdom on April 2, 2007 added incremental sales of $3.6
million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The acquisition of the operations of C.M Jackson Associates, Inc. (CMJ) in the United States on February 28, 2007 added
incremental sales of $1.4 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007.

After excluding the
impact of sales generated from acquisitions, sales in the United States decreased by $0.3 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. This decrease was due to price erosion in the industry
of approximately 2% to 3%. This decrease was partially offset by an increase in sales volume. After excluding the impact of sales generated from acquisitions, sales in Canada decreased by $2.5 million for the six months ended June 30, 2008
compared to the six months ended June 30, 2007 due to price erosion in the industry and a relative softness in our Canadian markets during the six months ended June 30, 2008. The decrease in sales in Canada would have been $5.8 million;
however, the weakening of the United States dollar compared to the Canadian dollar positively impacted sales in Canada by $3.3 million. After excluding the impact of sales generated from acquisitions, sales in the United Kingdom were $20.7 million
for both the six months ended June 30, 2008 and the six months ended June 30, 2007. The weakening of the United States dollar compared to the British pound positively impacted sales in the United Kingdom by $0.1 million. Sales in
continental Europe increased by $0.4 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The weakening of the United States dollar compared to the Euro positively impacted sales in continental
Europe by $0.2 million.

Cost of Goods Sold. Cost of goods sold for the six months ended June 30, 2008 increased 7.0%, or $7.3 million, to
$110.2 million from $102.9 million for the six months ended June 30, 2007. Cost of good sold as a percentage of sales decreased to 65.7% for the quarter ended June 30, 2008 from 66.2% for the quarter ended June 30, 2007. The
acquisitions previously discussed added incremental costs of goods sold in the six months ended June 30, 2008 compared to the six months ended June 30, 2007 of $5.7 million for Tri-Ad, $0.2 million for Backwell, $2.9 million for McGurk,
and $0.8 million for the operations of CMJ. Cost of goods sold increased an additional $2.6 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007 due to the weakening of the United States dollar
compared to the Canadian dollar, British pound, and Euro. After excluding the incremental costs associated with acquisitions and the foreign currency impact, the remaining impact was a decrease in cost of goods sold of $4.9 million for the six
months ended June 30, 2008 compared to the six months ended June 30, 2007. This decrease was primarily due to the realization of benefits from consolidating certain operations in North America during 2007.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended June 30, 2008 increased 9.1%, or $2.1
million, to $24.8 million from $22.7 million for the six months ended June 30, 2007. The acquisitions previously discussed added incremental expenses in the six months ended June 30, 2008 compared to the six months ended June 30, 2007
of $3.0 million. This increase was partially offset by a $0.9 million reduction of non-recurring expenses associated with integrating business acquisitions and severance costs associated with consolidating certain operations in North America.

Depreciation and Amortization Expenses. Depreciation and amortization expenses for the six months ended June 30, 2008 increased 25.7%, or $2.8
million, to $13.7 million from $10.9 million for the six months ended June 30, 2007. Depreciation and amortization expense increased $0.9 million due to a change in the remaining useful life for production software that is being
replaced. The expense associated with this production software was $1.5 million for the six months ended June 30, 2008 compared to $0.6 million for the six months ended June 30, 2007. In addition, the acquisitions previously
discussed added incremental expenses of $0.9 million in the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The remaining increase of $1.0 million was primarily due to depreciation and amortization on assets
acquired or placed in service during 2007 and 2008.

Interest Expense. Interest expense for the six months ended June 30, 2008 increased 2.6%,
or $0.5 million, to $18.7 million from $18.2 million for the six months ended June 30, 2007. This increase was due to interest expense on borrowings made on the senior secured acquisition facility during 2007. Interest expense from borrowings
on the senior secured acquisition facility was $1.3 million in the six months ended June 30, 2008 compared to $0.6 million in the six months ended June 30, 2007. This increase was partially offset by lower interest rates on the senior
secured term loan during the six months ended June 30, 2008 than during the six months ended June 30, 2007. Interest expense on the



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##### Table of Contents

senior secured term loan was $4.4 million for the six months ended June 30, 2008 compared to $4.6 million for the quarter ended June 30, 2007.

Other Expense (Income), net.Other expenses, net for the six months ended June 30, 2008 increased by $0.5 million to $0.4 million of income
from $0.2 million of income for the six months ended June 30, 2007. Other expense, net, primarily consists of realized (gains) losses on foreign exchange, net of interest income. The fluctuation from the six months ended June 30, 2008 to
the six months ended June 30, 2007 was primarily due to a more favorable fluctuation in United States dollar and Canadian dollar exchange rates during the first six months of 2008 compared to the same period of 2007.

Provision for income taxes. The effective tax rate for the six months ended June 30, 2008 was 54.6%, compared to 32.4% for the six months ended June 30,
2007. The increase in the effective tax rate is primarily due to expenses not fully deductible for income tax purposes having a larger impact on the effective tax rate for the six months ended June 30, 2008 than for the six months ended
June 30, 2007. This larger impact in the six months ended June 30, 2008 than six months ended June 30, 2007 is due to the income before income taxes for the six months ended June 30, 2008 being closer to zero than the income
before income taxes for the six months ended June 30, 2007.

Income from discontinued operations. Income from (loss on) discontinued operations
was zero in the six months ended June 30, 2008 compared to a gain of $0.8 million in the six months ended June 30, 2007. This fluctuation was due to the divestiture of the controlling interest in Mozaic Group, Ltd. during the six months
ended June 30, 2007.

Liquidity and Capital Resources

At June 30, 2008, we had $14.3 million in cash and cash equivalents and $47.4 million in adjusted working
capital1compared with $34.5 million in cash and cash equivalents and $39.7 million in adjusted working capital1at December 31, 2007. The $20.2 million decrease in cash is primarily due to the payment of $23.8 million during the six months ended June 30, 2008 for the acquisitions of
Tri-Ad and Backwell, partially offset by cash generated from operations. The $7.7 million increase in adjusted working capital is primarily due to $2.9 million and $0.1 million of adjusted working capital associated with the Tri-Ad and Backwell
acquisitions, respectively, and a decrease in accounts payable during the six months ended June 30, 2008 of $6.1 million (excluding Tri-Ad and Backwell).



|1 | Adjusted working capital is defined as current assets (excluding cash and cash equivalents) less current liabilities (excluding the current portion of long-term debt). However,
adjusted working capital is not a recognized measurement under GAAP, and when analyzing our financial position, investors should use adjusted working capital in addition to, and not as an alternative for, working capital as defined in GAAP. The
following table reconciles working capital to adjusted working capital:
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                           |  |               |         |   |                   |   |         |  
|---------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                           |  | June 30, 2008 |         |   | December 31, 2007 |  
|Working capital                                            |  | $             | 59,520  |   |                   | $ | 71,895  |  
|Less cash                                                  |  |               | (14,290 | ) |                   |   | (34,467 | )
|Add current portion of short-termand long-term obligations |  |               | 2,173   |   |                   |   | 2,226   |  
|                                                           |  |               |         |   |                   |   |         |  
|Adjusted working capital                                   |  | $             | 47,403  |   |                   | $ | 39,654  |  
|                                                           |  |               |         |   |                   |   |         |  

We expect that cash generated from operating activities and availability under our revolving credit facility,
which is included in our senior secured credit facility, will be our principal sources of liquidity. At June 30, 2008, there were no borrowings outstanding under the revolving credit facility, which had $35 million of borrowing availability.
Based on our current level of operations, we believe our cash flow from operations and availability under the revolving credit facility will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however,
that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to repay our indebtedness, or to fund our other
liquidity needs.

We are highly leveraged and our aggregate indebtedness at June 30, 2008 was $361.3 million. In 2011, our debt service requirements
will substantially increase as a result of the maturity of the senior secured term loans and borrowings on the



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senior secured acquisition facility on December 30, 2011. We anticipate that we will refinance these borrowings prior to the maturity of these debt
obligations. Our ability to operate our business, service our debt requirements and reduce our total debt will depend upon our future operating performance.

Our senior secured credit facility contains customary financial and other covenants, including a maximum leverage ratio and a minimum interest coverage ratio, as defined in the senior secured credit agreement. Our senior secured credit
facility also places certain restrictions on our ability to make capital expenditures. As of June 30, 2008 we were in compliance with all covenants. Below are the required financial covenant levels and the actual levels as of June 30,
2008:



|                                    |  |                 |              |        |   |            
|----------------------------------- |  | --------------- | ------------ | ------ | - | -----------
|                                    |  | Required        |              | Actual
|Maximum leverage ratio              |  |                 | 5.50         |        |   | 5.26       
|Minimum interest coverage ratio     |  |                 | 1.70         |        |   | 1.93       
|Maximum annual capital expenditures |  | not to exceed $ | 15.0 million |        | $ | 5.7 million

We believe that our financing arrangements provide us with sufficient financial flexibility to fund our
operations, debt service requirements and contingent earnout obligations. Our ability to access additional capital in the long-term depends on availability of capital markets and pricing on commercially reasonable terms as well as our credit profile
at the time we are seeking funds. From time-to-time, we review our long-term financing and capital structure. As a result of our review, we may periodically explore alternatives to our current financing, including the issuance of additional
long-term debt, refinancing our credit facility and other restructurings or financings. In addition, we may from time to time seek to retire our outstanding notes in open market purchases, privately negotiated transactions or otherwise. These
repurchases, if any, will depend on prevailing market conditions based on our liquidity requirements, contractual restrictions and other factors. The amount of repurchases of our notes may be material and may involve significant amounts of cash
and/or financing availability.

Cash flow

Six
months ended June 30, 2008 compared to the six months ended June 30, 2007

Cash flows from operating activities.Net cash provided by
operating activities was $10.3 million for the six months ended June 30, 2008 as compared to $11.0 million for the six months ended June 30, 2007. The primary reason for the decrease was the payment of $2.5 million under the purchase
agreement for the operations of CMJ, partially offset by cash provided by the operations of acquired businesses.

Cash flows from investing
activities. Net cash used for investing activities was $29.0 million for the six months ended June 30, 2008 as compared to $34.0 million for the six months ended June 30, 2007. The decrease in cash used for investing activities is
primarily due to higher cash payments associated with the acquisitions in 2007 than in 2008. In addition, capital expenditures decreased $0.5 million to $5.7 million for the six months ended June 30, 2008 as compared to $6.2 million for the six
months ended June 30, 2007. Capital expenditures are generally made to replace existing assets, support new business or customer initiatives, increase productivity, facilitate cost reductions, or meet regulatory requirements. Our operations
typically do not have large capital requirements.

Cash flows from financing activities.Net cash used in financing activities was
$1.3 million for the six months ended June 30, 2008 as compared to cash provided by financing activities of $20.7 million for the six months ended June 30, 2007. The primary reason for this fluctuation was borrowings of $23.1 million on
the acquisition facility during the six months ended June 30, 2007 associated with the acquisitions of CMJs operations and McGurk. There were no borrowings on the acquisition facility during the six months ended June 30, 2008 and,
with the borrowings at the end of 2007 in connection with the Tri-Ad acquisition, the Company has borrowed all of the $40 million available under the acquisition facility.

Contractual Obligations

At June 30, 2008, there were no material changes in our December 31, 2007
contractual obligations.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations,
liquidity, capital expenditures or capital resources.



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##### Table of Contents

Critical Accounting Policies and Recently Issued Accounting Standards

See Note A to the Condensed Consolidated financial Statements for the impact of recently issued accounting standards.

There have been no other material changes to our critical accounting policies since December 31, 2007.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

At
June 30, 2008 there were no material changes in our December 31, 2007 market risks relating to interest and foreign exchange rates.



|Item 4T. | Controls and Procedures
|-------- | -----------------------

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to provide reasonable
assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and
forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of
June 30, 2008. Based on this evaluation, which excluded an assessment of internal control of the acquired operations of 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flex-Art Design
Inc.; and Backwell Design Inc. and Gemini Graphic Imaging Inc. (collectively Backwell), the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures were
effective as of June 30, 2008, at the reasonable assurance level.

The Company acquired the outstanding shares of 1043497 Ontario Limited
(1043497) and Cooper & Williamson, Inc. (together with 1043497 and its wholly owned subsidiaries Tri-Ad Graphic Communications Ltd. and Flex-Art Design Inc., Tri-Ad) effective January 1, 2008 and the Company
acquired the outstanding shares of Backwell on May 2, 2008. As permitted by the SEC, managements assessment as of June 30, 2008 did not include the internal control of Tri-Ad or Backwell, both of which are included in the
Companys consolidated financial statements as of June 30, 2008.

Changes in Internal Control Over Financial Reporting

During the quarter ended June 30, 2008, we changed the Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)
to include the previously out of scope acquisition of the operations of McGurk Studios Limited and Thames McGurk Limited within our evaluation of control effectiveness. However, as controls were in place for these operations prior to the second
quarter of 2008, these changes have neither materially affected, nor are they reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Various lawsuits, claims and proceedings have
been or may be instituted or asserted against entities within the Company. While the amounts claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that
results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on currently available facts and in light of legal and other defenses available to us, management believes that the
disposition of matters that are pending or asserted will not have a materially adverse effect on the Companys financial position, results of operations, and liquidity.



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##### Table of Contents

|Item 1A. | Risk Factors
|-------- | ------------

There have been no material changes to the risk
factors included in the Registrants Form 10-K for the year ended December 31, 2007.



|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|3.            |  | CERTIFICATE OF INCORPORATION AND BY-LAWS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|3.1           |  | Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on November 8, 2005, incorporated by reference to exhibit 3.1 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                           
|              | 
|3.2           |  | By-Laws of the Registrant adopted on November 8, 2005, incorporated by reference to exhibit 3.2 to the Registrants registration statement on Form S-4 filed on May 5, 2006,
File No. 333-133825                                                                                                                                                                                                                                                                                                                                   
|              | 
|4.            |  | INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|4.1           |  | Certificate of Incorporation. See Exhibit 3.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|4.2           |  | By-laws. See Exhibit 3.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|4.3           |  | Indenture dated as of December 30, 2005, by and between the Registrant and Wells Fargo Bank National Association, as trustee, relating to the 12% Senior Subordinated Notes due 2013,
incorporated by reference to exhibit 4.3 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                    
|              | 
|4.4           |  | Form of Global 12% Notes due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|4.5           |  | Form of Regulation S Temporary Global 12% Notes due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|4.6           |  | Supplemental Indenture, dated April 25, 2006, by and among the Registrant, Southern Graphic Systems, Inc., Project Dove Holdco, Inc. and Wells Fargo Bank, N.A., as trustee, incorporated by
reference to exhibit 4.6 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                             
|              | 
|4.7           |  | Registration Rights Agreement, dated as of December 30, 2005, by and between the Registrant, certain of its subsidiaries as Guarantors, and UBS Securities LLC and Lehman Brothers Inc. as
Initial Purchasers, incorporated by reference to exhibit 4.7 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                           
|              | 
|4.8           |  | Credit Agreement, dated as of December 30, 2005, among the Registrant and Southern Graphic Systems  Canada, Co., as borrowers, certain of the Registrants subsidiaries, as
guarantors, UBS Securities LLC and Lehman Brothers Inc., as joint arrangers and joint bookmanagers, UBS AG, Stamford Branch, as issuing bank, US administrative agent, US collateral agent and Canadian collateral agent, Lehman Brothers Inc., as
syndication agent, CIT Lending Services Corporation, as documentation agent, National City Bank, as



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|              |  | Canadian administrative agent, UBS Loan Finance LLC, as swingline lender, and the lenders referred to therein, incorporated by reference to exhibit 10.7 to the Registrants registration
statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                                                                                                   
|              | 
|4.9           |  | First Amendment to Credit Agreement by and among the Registrant and Southern Graphic Systems - Canada, Co., as borrowers, certain affiliates of the borrowers, as guarantors, and the lenders
party to the Credit Agreement as described therein, incorporated by reference to exhibit 10.8 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                
|              | 
|4.10          |  | Security Agreement, dated as of December 30, 2005, by the Registrant, as borrower, certain of the Registrants subsidiaries, as guarantors, and UBS AG, Stamford Branch, as US collateral
agent, incorporated by reference to exhibit 10.9 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                 
|              | 
|4.11          |  | Canadian Security Agreement, dated as of December 30, 2005, by certain of the Registrants subsidiaries, as pledgors, and UBS AG, Stamford Branch, as Canadian collateral agent,
incorporated by reference to exhibit 10.10 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                                
|              | 
|4.12          |  | Debenture dated as of December 30, 2005, from SGS-UK Holdings Limited and others, as chargors, in favour of UBS AG, Stamford Branch, as Canadian collateral agent, incorporated by reference to
exhibit 10.11 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                                              
|              | 
|4.13          |  | Limited Waiver and Consent to Credit Agreement dated as of April 11, 2007 among the Registrant and Southern Graphic Systems  Canada, Co., as borrowers, certain of the Registrants
subsidiaries, as guarantors, the lenders signatory thereto, UBS AG, Stamford Branch, as US administrative agent, US collateral agent and Canadian collateral agent, and National City Bank, as Canadian administrative agent, incorporated by reference
to Exhibit 4.13 to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed May 15, 2007, File No. 333-133825
|              | 
|31            |  | CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|31.1          |  | Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|31.2          |  | Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|32            |  | CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|              | 
|32.1          |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                               



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



|                     |  |                         |  |                                                                    
|-------------------- |  | ----------------------- |  | -------------------------------------------------------------------
|                     |  | SGS INTERNATIONAL, INC.
|                     |  |                        
|Date: August 8, 2008 |  | By:                     |  | /s/ Henry R. Baughman                                              
|                     |  |                         |  | Henry R. Baughman                                                  
|                     |  |                         |  | President and Chief Executive Officer (Principal
Executive Officer)
|                     |  |                        
|Date: August 8, 2008 |  | By:                     |  | /s/ James M. Dahmus                                                
|                     |  |                         |  | James M. Dahmus                                                    
|                     |  |                         |  | Chief Financial Officer (Principal Financial Officer)              



31