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.

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

2

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 Ended June 30, 2008			Three Months Ended June 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

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands of dollars)

	Six Months Ended June 30, 2008			Six Months Ended June 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.

4

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 authorized and 100 shares outstanding		—			—
Additional capital		107,000			107,000
Accumulated other comprehensive income - unrealized translation 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.

5

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholder’s Equity

(unaudited)

(in thousands of dollars)

	Comprehensive Loss			Common Stock		Additional Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total Stockholder’s Equity
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.

6

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands of dollars)

	Six Months Ended June 30, 2008			Six Months Ended June 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.

7

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.

8

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 Ended June 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.

9

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.

10

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.

11

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			Customer relationships (cost)			Other intangible assets (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 Ended June 30, 2008		Three Months Ended June 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

12

	Six Months Ended June 30, 2008		Six Months Ended June 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 Value at June 30, 2008		Fair Value Measurements at June 30, 2008 Using Quoted Prices in Active 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,

13

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.

14

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		Consolidated Guarantor Subsidiaries		Consolidated Non-Guarantor Subsidiaries			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

15

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		Consolidated Guarantor Subsidiaries		Consolidated Non-Guarantor Subsidiaries		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

16

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries		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

17

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries			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	)

18

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries			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

19

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries		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

20

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries			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

21

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries			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

22

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.)

23

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

	Three Months Ended June 30, 2008					Three Months Ended June 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 Ended June 30, 2008					Six Months Ended June 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	%

24

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

25

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 capital¹ compared with $34.5 million in cash and cash equivalents and $39.7 million in adjusted working capital¹ at 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-term and 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

26

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.

27

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.

28

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

EXHIBIT NUMBER	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

29

EXHIBIT NUMBER	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

30

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