Purpose

The purpose of the Audit Committee ("the Committee") is to represent and assist the Board of Directors in its general oversight of the company's accounting and financial reporting processes, audits of the financial statements, and internal control and audit functions. Management is responsible for (a) the preparation, presentation and integrity of the company's financial statements; (b) accounting and financial reporting principles; and (c) the company's internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations. The company's independent auditing firm is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards.

The Audit Committee members are not professional accountants or auditors and their functions are not intended to duplicate or to certify the activities of management and the independent auditor, nor can the Committee certify that the independent auditor is "independent" under applicable rules. The Audit Committee serves a board level oversight role where it oversees the relationship with the independent auditor, as set forth in this charter, and provides advice, counsel and general direction, as it deems appropriate, to management and the auditors on the basis of the information it receives, discussions with the auditor, and the experience of the Committee's members in business, financial and accounting matters.

Membership and Structure

The Audit Committee will meet compliance with the corporate governance structure required by FINRA Rule 4350(d) prior to July 31, 2005 which requires membership of at least three independent directors. The Audit Committee currently is comprised of at least two directors determined by the Board of Directors to meet the independence and financial literacy requirements of The NASDAQ Stock Market, Inc. ("NASDAQ") and applicable federal law. Appointment to the Committee, including the designation of the Chair of the Committee and the designation of any Committee members as "audit committee financial experts", shall be made on an annual basis by the full Board upon recommendation of the Nominating Committee, at the first organizational meeting of the Board held after the annual shareholders meeting.

Meetings of the Committee shall be held at such times and places as the Committee shall determine, including by written consent, but shall meet at least four times each year. The Committee will retain written minutes of its meetings, which minutes will be filed with the minutes of the Board of Directors. When necessary, the Committee shall meet in executive session outside of the presence of any senior executive officer of the Corporation. As necessary or desirable, the Committee Chair may request that members of management and representatives of the independent auditor be present at Committee meetings.

The Chair of the Committee shall report on activities of the Committee to the full Board.

Responsibilities

The Audit Committee shall:

• Annually review and reassess the adequacy of its charter and recommend to the Board any changes and revisions to this charter deemed necessary or desirable, and to ensure the Committee is in compliance with applicable NASDAQ Audit Committee Requirements. The Board shall have the sole authority to amend this charter.
• Is directly responsible for the appointment, replacement, compensation and oversight of the work performed by the independent auditor. The independent auditor shall report directly to the Committee.
• Ascertain the independence of the independent auditors by reviewing, at least annually, a written statement from the independent auditor concerning all relationships between the independent auditor and the Company as contemplated by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees.
• Establish policies and procedures for the review and pre-approval by the Committee of all auditing services and permissible non-audit services (including the fees and terms thereof) to be performed by the independent auditor, with exceptions provided for de minimis amounts under certain circumstances as described by law.
• Review the scope of the independent auditor's annual audit including risk and other factors considered by the accountants in determining the audit scope; confirm that no limitations have been placed on the scope or nature of their audit procedures.
• Review with the Company's management and the independent auditors the Company's accounting and financial reporting internal controls. Obtain annually in writing from the independent auditor its letter as to the adequacy of such internal controls.
• Review with the Company's management:
  • Actions taken to meet their responsibilities in terms of S. 404 of the Sarbanes-Oxley Act
  • The quarterly and annual disclosures and certification made by management in terms of S. 302 of the Sarbanes Oxley Act.
  • The potential consequences of any apparent or disclosed deficiencies, and the steps taken by management to remedy any such deficiencies
• Review with the Company's independent auditor its judgments as to quality, not just acceptability, of the Company's significant accounting and reporting principles, practices and procedures applied by the Company in preparing its financial statements.
• Adopt a process whereby the independent auditor will advise the Committee through its Chair of any matters identified during their review of the Company's interim quarterly financial statements, and that such notification as required under standards for communication with Audit Committees is to be made prior to the related press release or, if not practicable, prior to filing Forms 10-QSB.
• At the completion of the annual audit, review with management and the independent auditor the following:
  • The annual financial statements and related footnotes and financial information to be included in the Company's annual report to shareholders and on Form 10-KSB.
  • Results of the audit of the financial statements and the related report thereon.
  • Results of the audit of internal control over financial reporting.
  • Any changes in the application of significant accounting principles used by the Company in preparing the financial statements.
  • Significant changes to the annual external audit plan, if any, and any serious disputes or difficulties with management encountered during the audit including extent of cooperation received; access to all requested records, data and information; disagreements with management, which had they not been satisfactorily resolved, would have caused them to issue a nonstandard report on the Company's financial statements.
• Other communications required to be communicated by the independent auditor by Statement of Auditing Standards (SAS) 61 as amended by SAS 90 relating to the conduct of the audit. Further, receive a written communication from the independent auditor concerning their judgment about the quality of the Company's accounting principles, as outlined in SAS 61 as amended by SAS 90, and that they concur with management's representation concerning audit adjustments.
• Review and discuss with management the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures.
• Review related party transactions, if any, (as defined in the relevant NASDAQ requirements) to ensure such transactions were pre-approved by the Committee.
• Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; complaints received from clients or counterparties; and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
• After preparation by management and review by the independent auditor, approve the report required under SEC rules to be included in the Company's annual proxy statement. The charter is to be published as an appendix to the proxy statement every three years.
• Review with the independent auditor the quality of the Company's financial and accounting personnel. Also, elicit the comments of management regarding the responsiveness of the independent auditor to the Company's needs.
• Review with management and the independent auditor to discuss any relevant significant recommendations that the independent auditor may have, particularly those characterized as material' or serious' and management's response to those recommendations
• Recommend to the Board the selection, retention or termination of the Company's independent auditor.
• Review with management and the independent auditor the methods used to establish and monitor the Company's policies with respect to unethical or illegal activities by Company employees that may have a material impact on the financial statements.
• Generally as part of the review of the annual financial statements, receive an oral report(s), at least annually, from the Company's general counsel concerning legal and regulatory matters that may have a material impact on the financial statements.
• The Committee shall conduct an annual performance evaluation of the Committee itself, which evaluation shall compare the performance of the Committee with the requirements of this charter. The performance evaluation shall be conducted in such manner as the Committee deems appropriate

Resources and Authority

• In fulfilling its responsibilities, the Committee shall have the authority, and shall be afforded resources sufficient, to engage external professionals to render advice and counsel when determined by the Committee to be necessary or appropriate. The Committee shall have sole authority to retain and terminate any such consultant or legal adviser, including sole authority to approve the fees and other retention terms.