Audit Comittee Charter
(As Approved by the Board on December 6, 2004)
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PURPOSE
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The primary
function of the Audit Committee is to assist the Board of Directors in fulfilling
its oversight responsibilities with respect to the accounting and financial
reporting processes of Pro-Dex, Inc. (the "Company") and audits
of the financial statements of the Company.
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MEMBERSHIP
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The Audit
Committee shall be comprised of at least three members of the Board of Directors.
Members of the Audit Committee must meet the following criteria (as well
as any criteria required by Section 10A(m)(3) of the Securities Exchange
Act of 1934, the rules and regulations of the Securities and Exchange Commission
and the Nasdaq Stock Market, copies of which will be provided to the Board
of Directors upon request):
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A.
Each member must be an independent director, as defined in (i) NASD Rule
4200 and (ii) Rule 10A-3(b)(1) under the Securities Exchange Act of 1934.
B. Each member must not have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any
time during the past three years.
C. Each member must be financially literate and have the ability to read
and understand fundamental financial statements.
D. At least one member must be an "audit committee financial expert"
as defined by the Item 401(h) of Regulation S-K of the Securities Act of
1933.
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The Board
of Directors shall also designate a chairperson of the Audit Committee.
Members of the Audit Committee are elected to serve for a term of one year.
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FUNCTIONS
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The Audit
Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors.
The Company shall provide for appropriate funding, as determined by the
Audit Committee, for payment of (a) compensation to the independent auditor
for the purpose of rendering or issuing an audit report, (b) compensation
to any advisors employed by the Audit Committee, and (c) ordinary administrative
expenses of the Audit Committee that are necessary or appropriate in carrying
out its duties. Without limiting the Audit Committee's authority,
the Audit Committee shall carry out the following specific activities:
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Financial
Statement and Disclosure Matters
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1. Review
and reassess the adequacy of this Charter annually and recommend any proposed
changes to the Board of Directors for approval.
2. Review and discuss with management and the independent auditor the
annual audited financial statements, including disclosures made in management's
discussion and analysis, and recommend to the Board of Directors whether
the audited financial statements should be included in the Company's
Form 10-KSB.
3. Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of
its Form 10-QSB, including the results of the independent auditor's
review of the quarterly financial statements.
4. Review and discuss reports from the independent auditors on:
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(A) All
critical accounting policies and practices to be used.
(B) All alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditor.
(C) Other material written communications between the independent auditor
and management, such as any management letter or schedule of unadjusted
differences.
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5. Discuss
with the independent auditor the matters required to be discussed by Statement
on Auditing Standards No. 61 relating to the conduct of the audit, including
any difficulties encountered in the course of the audit work, any restrictions
on the scope of activities or access to requested information, and any significant
disagreements with management.
6. Review disclosures made to the Audit Committee by the Company's
CEO and CFO during their certification process for the Form 10-KSB and Form
10-QSB about any significant deficiencies in the design or operation of
internal controls or material weaknesses therein and any fraud involving
management or other employees who have a significant role in the Company's
internal controls.
7. Provide the audit committee report required by the rules of the Securities
and Exchange Commission to be included in the Company's annual proxy
statement.
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Independent
Auditors
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8. The
Audit Committee shall have the sole authority to appoint or replace the
independent auditor (subject, if applicable, to shareholder ratification).
9. The Audit Committee shall be directly responsible for the compensation
and oversight of the work of the independent auditor (including resolution
of disagreements between management and the independent auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report
or related work.
10. The Audit Committee shall preapprove all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed
for the Company by its independent auditor, subject to the de minimis exceptions
for non-audit services described in Section 10A(i)(1)(B) of the Securities
Exchange Act of 1934 which are approved by the Audit Committee prior to
the completion of the audit. The Audit Committee may form and delegate authority
to subcommittees consisting of one or more members when appropriate, including
the authority to grant preapprovals of audit and permitted non-audit services,
provided that decisions of such subcommittee to grant preapprovals shall
be presented to the full Audit Committee at its next scheduled meeting.
11. Obtain from the independent auditor a formal written statement delineating
all relationships between the independent auditor and the Company, consistent
with Independence Standards Board Standard 1, and the Audit Committee's
responsibility for actively engaging in a dialogue with the independent
auditor with respect to any disclosed relationships or services that may
impact the objectivity and independence of the independent auditor and for
taking, or recommending that the full Board of Directors take, appropriate
action to oversee the independence of the independent auditor.
12. Ensure the rotation of the audit partners as required by Section 10A(j)
of the Securities Exchange Act of 1934, and consider whether, in order to
assure continuing auditor independence, it is appropriate to adopt a policy
of rotating the independent auditing firm on a regular basis.
13. Recommend to the Board of Directors policies for the Company's
hiring of employees or former employees of the independent auditor consistent
with Section 10A(l) of the Securities Exchange Act of 1934.
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Compliance
Oversight
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14. Obtain
from the independent auditor assurance that Section 10A(b) of the Securities
Exchange Act of 1934 has not been implicated.
15. Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters, and the confidential, anonymous submission by employees
of concerns regarding questionable accounting or auditing matters.
16. Discuss with the Company's General Counsel legal matters that
may have a material impact on the financial statements or the Company's
compliance policies.
17. Review and approve in advance any proposed related party transactions.
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LIMITATION
OF AUDIT COMMITTEE'S ROLE
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While the
Audit Committee has the responsibilities and powers set forth in this Charter,
it is not the duty of the Audit Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of management and the independent auditor.
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MEETINGS
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| The Audit
Committee shall meet as often as it determines appropriate, but not less
frequently than quarterly. Minutes shall be kept of each meeting of the
Audit Committee and will be provided to each member of the Board of Directors. |
