Audit Committee Charter

Organization

The Audit Committee of the Board of Directors shall have at least three directors, all of whom are independent of management. Independence shall be determined pursuant to the standards set by the Securities and Exchange Commission (the “Commission”) and the requirements of NASDAQ.

Independence

Directors who are officers or employees of the Company or of its subsidiaries, or who have a relationship, which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director will not be considered independent. No member of the Audit Committee may receive compensation of any kind (including consulting and advisory fees) from the Company, other than for services rendered as a member of the Board and as a member of committees of the Board.

In addition, Directors falling within any of the categories listed below will not be considered independent:

  • A Director who is, or during the past three years was, employed by the Company or by any parent or subsidiary of the Company.
  • A Director who accepts or accepted (or whose family member accepts or accepted) any payment from the Company (or any parent or subsidiary of the Company) in excess of $60,000 during the current or any of the past three fiscal years, other than compensation specifically excluded under NASDAQ Rule 4200(a)(15)(B).
  • A Director who is, or has a family member who is, a partner, controlling shareholder or executive officer of any organization to which or from which the Company made or received payments for property or services that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000 (whichever is more) in any of the most recent three fiscal years, other than payments arising solely from investments in the Company’s securities or payments under non-discretionary charitable contribution matching programs.
  • A Director who is or has a family member of an individual who is or has been employed by the Company (or any parent or subsidiary of the Company) as an executive officer during any of the past three years.
  • A Director who is or has a family member who is an executive officer of another entity where at any time during the most recent three fiscal years any of the Company’s executive officers serve on the compensation committee of that entity.
  • A Director who is or has a family member who is a current partner of the Company’s outside auditor or was a partner or employee of the Company’s outside auditor who worked on the audit engagement during any of the past three fiscal years.

Financial Expertise

All members of the Audit Committee must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement, and cash flow statement.

In addition, at least one member of the Audit Committee must be “financially sophisticated” pursuant to NASDAQ rules and be a “financial expert,” as such term is defined by the Commission. Qualifications for such financial expert would include, among other things, whether a member has:

  • an understanding of generally accepted accounting principles and financial statements
  • experience applying generally accepted accounting principles in connection with accounting for estimates, accruals and reserves that are generally comparable to those used in the Company’s financial statements
  • experience preparing or auditing financial statements that present accounting issues that are generally comparable to those raised by the Company’s financial statements
  • experience with internal controls and procedures for financial reporting
  • an understanding of audit committee functions
  • past employment experience in finance or accounting
  • professional certification in accounting

The Board shall make all determinations as to whether a Director is a “financial expert,” as defined by rules of the Commission.

The members of the Audit Committee are to be elected by the Board, which shall make all decisions with respect to whether an Audit Committee member is “independent” and/or a “financial expert” and shall serve until their successors are duly elected and qualified. Unless the Chair is elected by the full Board, the members of the Audit Committee may designate a Chair by majority vote of the full Audit Committee membership, which Chair shall be a financial expert.

Statement of Policy

The Audit Committee shall provide assistance to the Board of Directors in fulfilling its responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices of the Company, and the quality and integrity of financial reports of the Company. In doing so, it is the responsibility of the Audit Committee to maintain free and open communication between the directors, the independent auditors and the financial management of the Company.

Responsibilities

In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible in order to best react to changing conditions and to ensure to the directors and shareholders that the corporate accounting and reporting practices of the Company are in accordance with all requirements and are of the highest quality.

In carrying out these responsibilities, the Audit Committee will:

  • Meet at least quarterly. Each member of the Committee shall have one vote. A quorum of the Committee shall consist of not less than two (2) members. The Committee shall be authorized to take any permitted action only by the affirmative vote of a majority of the Committee members present at any meeting at which a quorum of its members are present or by the unanimous written consent of all of the Committee members.
  • Obtain the full Board of Directors’ approval of this Charter and review and reassess this Charter as conditions dictate, but at least annually.
  • Review and select the independent auditors, considering independence and effectiveness, and pre-approve the fees and other compensation to be paid to the independent auditors to audit the financial statements of the Company and its divisions and subsidiaries.
  • Have a clear understanding with the independent auditors that they are ultimately accountable to the Audit Committee, as the shareholders’ representatives, who has the ultimate authority in deciding to engage, evaluate, determine the compensation of, and if appropriate, terminate their services.
  • Meet at least annually with the independent auditors and financial management of the Company to review: the scope of the proposed audit, the timing of quarterly reviews for the current year, the procedures to be utilized, and at the conclusions of each audit and quarterly review, discuss the results, including any comments or recommendations by the independent auditors.
  • Receive from the independent auditor as part of each Audit Committee meeting a summary of findings from completed special projects and receive a progress report on the active special projects with explanations for any deviations from the original plan.
  • Periodically review with the independent auditors and with the Company’s financial and accounting personnel, the adequacy and effectiveness of the Company’s accounting and financial controls, and elicit any recommendations for the improvement of such internal controls or of particular areas where new or more detailed controls or procedures are desirable. Emphasis should be given to the adequacy of internal controls to expose any payments, transactions, or procedures that might be deemed illegal or improper.
  • Review reports received by the Company from regulators together with any other legal and regulatory matters that may have a material effect on the financial statements or on related Company compliance policies.
  • Inquire of management and the independent auditors about significant risks or exposures and assess the steps management has taken to minimize such risks to the Company.
  • Review the quarterly financial statements with financial management and the independent auditors prior to the filing of the Form 10-Q (and/or prior to the press release of results, if possible) to determine that the independent auditors do not take exception to the disclosure and content of the financial statements, and discuss any other matters required to be communicated to the committee by the auditors. The chair of the committee may represent the entire committee for purposes of this review.
  • Before filing the 10-K, review the financial statements contained in the 10-K with management and the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the shareholders. Review with financial management and the independent auditors the results of their timely analysis of significant financial reporting issues and practices, including changes in, or adoptions of, accounting principles and disclosure practices, and discuss any other matters communicated to the committee by the auditors. Also review with financial management and the independent auditors their judgments about the quality, not just acceptability, of accounting principles and the clarity of the financial disclosure practices used or proposed to be used, and particularly, the degree of aggressiveness or conservatism of the organization’s accounting principles and underlying estimates, and other significant decisions made in preparing the financial statements.
  • Review and pre-approve any and all audit and non-audit related services provided to the Company by the independent auditors and their affiliates.
  • Recommend to the Board any appropriate action to ensure the independence of the independent auditors.
  • Provide sufficient opportunity for the independent auditors to meet with the members of the Audit Committee without members of management present. Among the items to be discussed in these meetings are the independent auditors’ evaluation of the Company’s financial, accounting, and the cooperation that the independent auditors received during the course of their audit and reviews.
  • Review at least annually with management the Company’s accounting and financial human resources and succession planning.
  • Report the results of the annual audit to the Board of Directors. If requested by the Board, invite the independent auditors to attend the full Board of Directors meeting to assist in reporting the results of the annual audit or to answer other directors’ questions (alternatively, the other directors, particularly the other independent directors, may be invited to attend the Audit Committee meeting during which the results of the annual audit are reviewed).
  • On an annual basis, obtain from the independent auditors a written communication delineating their relationships and professional services as required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.” In addition, review with the independent auditors the nature and scope of any disclosed relationships or professional services and take, or recommend that the Board of Directors take appropriate action to ensure the continuing independence of the auditors.
  • Submit the minutes of all meetings of the Audit Committee to the Board of Directors.
  • Investigate any matter brought to its attention within the scope of its duties, with the power to retain outside counsel and other advisors for this purpose if, in its judgment, that is appropriate.
  • Establish, review and update periodically a code of ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and ensure that management has established a system to enforce the code of ethics.
  • Establish procedures for the receipt, collection, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls and auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting and auditing matters.