ARNALL GOLDEN GREGORY LLP
171 17TH STREET NW
SUITE 2100
ATLANTA, GEORGIA 30363-1031
Direct phone: 404.873.8706
Direct fax: 404.873.8707
E-mail: Robert.Dow@agg.com
www.agg.com
March 31, 2005
VIA EDGAR
Ms. Cicely D. Luckey
Senior Staff Accountant
Division of Corporation Finance
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0305
RE: COLOR IMAGING, INC.
FORM 10-K FOR YEAR ENDED DECEMBER 31, 2004
FILE NO. 00-18450
Dear Mr. Mancuso:
On behalf of our client, Color Imaging, Inc. ("Color Imaging"), we transmit
Color Imaging's response to the Staff's letter of comment dated March 28, 2005.
For your convenience, the comments contained in that letter are reprinted below
in italics. We have enclosed a draft of revised Item 9A and the risk factor,
marked to show changes to respond to your comments.
Color Imaging's responses are as follows:
Item 9 A. Controls and Procedures, Page 53
- -------------------------------------------
1. We note your statement that a "control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the internal control system are met." Please revise to state
clearly, if true, that your disclosure controls and procedures are designed
to provide reasonable assurance of achieving their objectives and that your
principal executive officer and principal financial officer concluded that
your disclosure controls and procedures are effective at that reasonable
assurance level. In the alternative, remove the reference to the level of
assurance of your disclosure controls and procedures. Please refer to
Section II.F.4 of management's Report on Internal Control Over Financial
Reporting and Certification of Disclosure in Exchange Act Periodic Reports,
SEC Release No. 33-8238, available on our website at
http://www.sec.gov/rules/final/33-8238.htm.
RESPONSE:
We have added language to state clearly that we are giving assurance at the
"reasonable assurance" level.
2. You also state that "Further, the design of control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations
in all control system, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdown can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
Ms. Cicely D. Luckey
March 31, 2005
Page 2
likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions." Pursuant to Section II.F.4 of Management's Reports on Internal
Control Over Financial Reporting and Certifications of Disclosure in
Exchange Act Periodic Reports, SEC Release No. 33-8238, if management
decides to include a discussion of reasonable assurance, the discussion
must be presented in a manner that does not make the disclosure in the
report confusing. Your statements regarding "no assurance" appear to
contradict your discussion of reasonable assurance. Please explain or
revise accordingly.
RESPONSE:
We have revised the disclosure to remove the "no assurance" phrase
throughout.
3. We note your disclosure that your management "concluded that our disclosure
controls and procedures were effective in timely alerting them to material
information relating to Color Imaging required to be included in our
periodic SEC filings." Please revise to clarify, if true, that your
officers concluded that your disclosure controls and procedures are
effective to ensure that information required to be disclosed in the
reports that you file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and procedures. Please also revise to clarify, if true,
that your officers concluded that your disclosure controls and procedures
are also effective to ensure that information required to be disclosed in
these reports is accumulated and communicated to your management, including
your chief executive officer and chief financial officer, to allow timely
decisions regarding required disclosure. Refer to Exchange Act Rule
13a-5(e).
RESPONSE:
We have added the language you suggested in your comment.
4. We note your statement that "Although we concluded that our disclosures
controls and procedures were effective at the end of fiscal 2004 and in
each interim period of fiscal 2004, we recognized that further improvements
could be made with regard to purchasing and receiving. During 2004 the
improvements made to our internal controls included: the updating of our
policies for disclosure controls and financial reporting and the
commencement of the updating of the procedures and tests to be implemented
during 2005 in compliance with SOX 404." Please provide appropriate
disclosure explaining how the disclosure controls and procedures were
determined to be effective in light of the identified matters.
RESPONSE:
We have added disclosure to indicate that the disclosure controls were
effective even prior to these changes. The disclosure indicates that the
changes are enhancements but did not materially change internal control.
5. In consideration of the above comments, please revise your discussion of
your controls in the Risk Factors section on page 15 and 16 of your filing.
We have revised the risk factor to remove all use of the "no assurance"
language. We also disclose that although controls were effective, there is
a risk related to the lack of completion of the SOX 404 process.
Ms. Cicely D. Luckey
March 31, 2005
Page 2
In addition, the Company has authorized me to acknowledge on its behalf,
that the Company is responsible for the adequacy of the disclosure in its
filings; staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission form taking any action with respect to the
filings; and the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United states.
If you agree that these changes are responsive to your comments, we will
amend the Form 10-K to reflect the changes. Please contact us to give us your
feedback. If you have any questions, please do not hesitate to contact me at
(404) 873-8706 or T. Clark Fitzgerald III at (404) 873-8622.
Very truly yours,
ARNALL GOLDEN GREGORY LLP
/s/ Robert F. Dow
Robert F. Dow
cc: Thomas Flinn
Morris E. Van Asperen, Chief Financial Officer
T. Clark Fitzgerald III, Esq.
Note: This Amendment No. 1 on Form 10-K/A is filed for the purpose of
clarifying the disclosure contained at Item 9A of the Annual Report for the year
ending December 31, 2004, concerning the conclusions of the Company's Chief
Executive Officer and its Chief Financial Officer that the Company's disclosure
control and procedures are effective at the reasonable assurance level as more
particularly described below in this Amendment No. 1.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed on our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
The Company's management does not expect that its disclosure controls will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, an evaluation of controls may not
detect all control issues and instances of fraud, if any, within the Company.
These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdown can occur because of simple
error or mistake. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events. The design may
not succeed in achieving its stated goals under all potential future conditions.
The Company has, however, designed its disclosure controls and procedures to
provide, and believes that such controls and procedures do provide, reasonable
assurance that information required to be disclosed by the Company in reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. The disclosure in this paragraph about inherent
limitations of control systems does not modify the conclusions set forth in the
next paragraph of the Company's Chief Executive Officer and its Chief Financial
Officer concerning the effectiveness of the Company's disclosure controls and
procedures.
As of the end of the period covered by this report, December 31, 2004, , we
carried out an evaluation, under the supervision and with the participation of
Color Imaging's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of Color
Imaging's disclosure controls and procedures. Based upon this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective at the reasonable assurance
level to ensure that information required to be disclosed on our Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
CHANGES IN DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER
FINANCIAL REPORTING
Although we concluded that our disclosures controls and procedures were
effective at the end of fiscal 2004 and in each interim period of fiscal 2004,
we recognized that further improvements could be made with regard to purchasing
and receiving. During 2004 the improvements made to our internal control over
financial reporting included: the updating of our policies for disclosure
controls and financial reporting and the commencement of the updating of the
procedures and tests to be implemented during 2005 in compliance with SOX 404.
While management believes that these improvements were important to enhance the
Company's ability to comply with its disclosure obligations, management
concluded that the Company's system of disclosure controls and procedures was
effective at the reasonable assurance level both prior to and after the changes.
The Company is not aware of any significant deficiencies or material weaknesses
in its internal control during 2004. The Company did not make any material
changes in its internal control over financial reporting during the fourth
quarter of 2004.
DUE TO INHERENT LIMITATIONS, OUR SYSTEM OF DISCLOSURE AND INTERNAL CONTROLS AND
PROCEDURES MAY NOT BE SUCCESSFUL IN PREVENTING ALL ERRORS OR FRAUD, OR IN MAKING
ALL MATERIAL INFORMATION KNOWN IN A TIMELY MANNER TO THE APPROPRIATE MANAGEMENT.
Though we have concluded with reasonable assurance that our books, records and
accounts are kept in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets, transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, receipts and expenditures and access to assets
is permitted in accordance with authorizations of management and directors of
the Company, we do not have internal auditors and we depend on a small staff
with which it is sometimes difficult to segregate certain duties or to document
our practices in policies and procedures. Further, notwithstanding management's
conclusions, the effectiveness of a system of disclosure and internal controls
and procedures is subject to certain inherent limitations, including cost and
staffing limitations, judgments used in decision making, assumptions regarding
the likelihood of future events, soundness of internal controls and fraud. Due
to such inherent limitations, the Company's system of disclosure or internal
controls and procedures may not be successful in preventing all errors or fraud,
or in making all material information known in a timely manner to the
appropriate management. In addition, we have not completed our policy and
procedure documentation and testing of internal control over financial reporting
as required under Section 404 of the Sarbanes-Oxley Act. If we fail to achieve
and maintain the adequacy of our internal controls, as such standards are
modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404. Moreover,
effective internal controls are necessary for us to produce reliable financial
reports and are important to helping prevent financial fraud. If we cannot
provide reliable financial reports or prevent fraud, our business and operating
results could be harmed, investors could lose confidence in our reported
financial information, and the trading price of our stock could drop
significantly.